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The Macroeconomics of Delegated Management

Author

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  • J.B. Donaldson
  • J.P. Danthine

Abstract

We are interested in the macroeconomic implications of the separation of ownership and control. We propose an alternative decentralized interpretation of the stochastic growth model, one where shareholders hire a self-interested manager who is in charge of the firm’s hiring and investment decisions. Under imperfect monitoring and incomplete contracting, delegation is seen to give rise to a generic conflict of interests between shareholders and managers. This conflict fundamentally results from the different income base of both types of agents, once aggregate market clearing conditions are taken into account. We derive the dynamic consequences of this divergence in intertemporal marginal rates of substitution and discuss the likelihood that appropriate incentive contracts offered the manager will mitigate the consequences of this divergence

Suggested Citation

  • J.B. Donaldson & J.P. Danthine, 2004. "The Macroeconomics of Delegated Management," 2004 Meeting Papers 289, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:289
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    References listed on IDEAS

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    1. James Dow & Gary Gorton & Arvind Krishnamurthy, 2003. "Equilibrium Asset Prices Under Imperfect Corporate Control," NBER Working Papers 9758, National Bureau of Economic Research, Inc.
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    Cited by:

    1. De Paoli, Bianca & Scott, Alasdair & Weeken, Olaf, 2010. "Asset pricing implications of a New Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2056-2073, October.
    2. Rui Albuquerue & Neng Wang, 2008. "Agency Conflicts, Investment, and Asset Pricing," Journal of Finance, American Finance Association, vol. 63(1), pages 1-40, February.
    3. Gorton, Gary B. & He, Ping & Huang, Lixin, 2014. "Agency-based asset pricing," Journal of Economic Theory, Elsevier, vol. 149(C), pages 311-349.

    More about this item

    Keywords

    business cycles; delegated management; contracting;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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