Delegation and commitment in durable goods monopolies
This paper studies a simultaneous-move infinite-horizon delegation game in which the principal of a durable goods monopoly entrusts pricing decisions to a manager who enjoys consuming her monetary rewards but dislikes production effort. The delegation contract allows for continual interference with...
| Main Authors: | , |
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| Format: | Working paper |
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University of Oxford
2007
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| _version_ | 1826279445033385984 |
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| author | Coury, T Petkov, V |
| author_facet | Coury, T Petkov, V |
| author_sort | Coury, T |
| collection | OXFORD |
| description | This paper studies a simultaneous-move infinite-horizon delegation game in which the principal of a durable goods monopoly entrusts pricing decisions to a manager who enjoys consuming her monetary rewards but dislikes production effort. The delegation contract allows for continual interference with managerial incentives: in each period the principal rewards the manager according to her performance. We show that when the cost of delegation is low relative to profits, the principal can attain the precommitment price plan in a perfect rational expectations equilibrium. The paper analyzes the robustness of this result under alternative specifications of timing and objectives. We also provide a numerical characterization of the equilibrium strategies for the case of linear-quadratic payoffs. |
| first_indexed | 2024-03-06T23:58:49Z |
| format | Working paper |
| id | oxford-uuid:75359c79-bff9-40ad-b7eb-72782b202580 |
| institution | University of Oxford |
| last_indexed | 2024-03-06T23:58:49Z |
| publishDate | 2007 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:75359c79-bff9-40ad-b7eb-72782b2025802022-03-26T20:07:55ZDelegation and commitment in durable goods monopoliesWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:75359c79-bff9-40ad-b7eb-72782b202580Bulk import via SwordSymplectic ElementsUniversity of Oxford2007Coury, TPetkov, VThis paper studies a simultaneous-move infinite-horizon delegation game in which the principal of a durable goods monopoly entrusts pricing decisions to a manager who enjoys consuming her monetary rewards but dislikes production effort. The delegation contract allows for continual interference with managerial incentives: in each period the principal rewards the manager according to her performance. We show that when the cost of delegation is low relative to profits, the principal can attain the precommitment price plan in a perfect rational expectations equilibrium. The paper analyzes the robustness of this result under alternative specifications of timing and objectives. We also provide a numerical characterization of the equilibrium strategies for the case of linear-quadratic payoffs. |
| spellingShingle | Coury, T Petkov, V Delegation and commitment in durable goods monopolies |
| title | Delegation and commitment in durable goods monopolies |
| title_full | Delegation and commitment in durable goods monopolies |
| title_fullStr | Delegation and commitment in durable goods monopolies |
| title_full_unstemmed | Delegation and commitment in durable goods monopolies |
| title_short | Delegation and commitment in durable goods monopolies |
| title_sort | delegation and commitment in durable goods monopolies |
| work_keys_str_mv | AT couryt delegationandcommitmentindurablegoodsmonopolies AT petkovv delegationandcommitmentindurablegoodsmonopolies |