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Delegation in a mixed oligopoly: the case of multiple private firms
Author(s) -
Heywood John S.,
Ye Guangliang
Publication year - 2009
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1436
Subject(s) - oligopoly , incentive , delegation , welfare , microeconomics , cournot competition , economics , profit (economics) , bertrand competition , market economy , management
Previous research examining mixed duopolies shows that the use of an optimal incentive contract for the public firm increases welfare and that privatization reduces welfare. We demonstrate that these results do not generalize to a mixed oligopoly with multiple private firms. We derive the optimal incentive contract for a public firm that weighs both profit and welfare and show that its use may either increase or decrease welfare depending on the number of private firms and the exact nature of costs. We also identify the conditions that determine whether or not privatizing the public firm facing an optimal incentive contract reduces welfare. Copyright © 2008 John Wiley & Sons, Ltd.