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The Babu and the Boxwallah: Managerial Incentives and Government Intervention in a Developing Economy

Author

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  • Kaushik Basu
  • Tridip Ray
  • Arghya Ghosh

Abstract

In developing economies a firm’s strategy is directed more often at the government than at other competing firms. As an initial step towards modeling such interactions this paper considers a situation where a government confronts a monopoly. The latter chooses price and maximizes profit and the former chooses a tax rate and maximizes tax revenue. The government and the monopoly can delegate the final decision‐making to, respectively, a bureaucrat and a manager. The incentive equilibrium of the model is characterized. It is shown that this kind of industrial setting is likely to exhibit greater inefficiencies than that which arises in standard models.

Suggested Citation

  • Kaushik Basu & Tridip Ray & Arghya Ghosh, 1997. "The Babu and the Boxwallah: Managerial Incentives and Government Intervention in a Developing Economy," Review of Development Economics, Wiley Blackwell, vol. 1(1), pages 71-80, February.
    • Handle: RePEc:bla:rdevec:v:1:y:1997:i:1:p:71-80
    DOI: 10.1111/1467-9361.00006
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    Cited by:

    1. Trishita Bhattacharjee & Rupayan Pal, 2013. "Managerial delegation in monopoly under network effects," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-009, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Rupayan Pal, 2010. "Cooperative Managerial Delegation, R&D And Collusion," Bulletin of Economic Research, Wiley Blackwell, vol. 62(2), pages 155-169, April.
    3. Ishita Chatterjee & Bibhas Saha, 2011. "Bilateral Delegation, Wage Bargaining and Managerial Incentives: Implications for Efficiency and Distribution," University of East Anglia Applied and Financial Economics Working Paper Series 028, School of Economics, University of East Anglia, Norwich, UK..
    4. Chatterjee, Ishita & Saha, Bibhas, 2013. "Bilateral delegation in wage and employment bargaining in monopoly," Economics Letters, Elsevier, vol. 120(2), pages 280-283.
    5. Ishita Chatterjee & Bibhas Saha, 2013. "Bargaining Delegation in Monopoly," Economics Discussion / Working Papers 13-09, The University of Western Australia, Department of Economics.
    6. Arghya Ghosh & Souresh Saha, 2007. "Excess Entry in the Absence of Scale Economies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(3), pages 575-586, March.
    7. Rupayan Pal, 2014. "Managerial delegation in monopoly and social welfare," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(4), pages 403-410, December.

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