Managerial Delegation Theory Revisited

Luciano Fanti · Luca Gori · Mauro Sodini

40 citations0/0 files storedManagerial and Decision Economics

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Game Theory and Applications Accounting and Organizational Management Merger and Competition Analysis

Abstract

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.

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1950The Bargaining Problem 1964A Behavioral Theory of the Firm 1990Performance Pay and Top-Management Incentives 1982Moral Hazard in Teams 1984Price and Quantity Competition in a Differentiated Duopoly 2003Executive Compensation as an Agency Problem 2005Pay without performance: the unfulfilled promise of executive compensation 2002Managerial Power and Rent Extraction in the Design of Executive Compensation

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