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Managerial delegation in monopoly and social welfare
Author(s) -
Pal Rupayan
Publication year - 2014
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/ijet.12047
Subject(s) - delegation , monopoly , microeconomics , externality , agency (philosophy) , incentive , economics , welfare , principal–agent problem , social welfare , industrial organization , public economics , business , market economy , finance , management , corporate governance , sociology , social science , political science , law
This paper develops a model of managerial delegation in the case of monopoly, without relying on agency theory based arguments, and examines its implications for social welfare. It shows that, in the presence of network externalities, (a) it is optimal for a monopolist to offer a sales‐oriented incentive scheme to her manager and (b) such managerial delegation in monopoly firm is socially desirable: both the monopolist and consumers are better off under managerial delegation than under no delegation. These results are in sharp contrast to the findings of existing studies on managerial delegation.