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Managerial Delegation Theory Revisited
Author(s) -
Fanti Luciano,
Gori Luca,
Sodini Mauro
Publication year - 2017
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.2799
Subject(s) - delegation , microeconomics , nash equilibrium , profit (economics) , economics , compensation (psychology) , game theory , mathematical economics , business , management , psychology , psychoanalysis
This article challenges the results of the ‘classical’ managerial delegation literature, where it is assumed that the weight of the managerial bonus only depends on the owner's will to maximise his own profits. By considering sales (S) (resp. relative profit (RP)) contracts, the received literature has found that (S,S) (resp. (RP,RP)) is the unique pure‐strategy sub‐game perfect Nash equilibrium in a game that contrasts S (resp. RP) with pure profit maximisation (PM). This article shows that none of the previous results may hold when the owner negotiates about managerial compensation with his manager. Copyright © 2016 John Wiley & Sons, Ltd.