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Regular Equilibria and Negative Welfare Implications in Delegation Games

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  • Tajika Tomoya

    (Institute of Economic Research, Hitotsubashi University, Naka 2-1, Kunitachi, Tokyo, Japan 186-8603)

Abstract

This study examines delegation games in which each player commits to a reaction function in advance. We focus on the regular subgame perfect equilibria of delegation games in the sense that the chosen reaction functions have an invertible Jacobian. Subsequently we provide a necessary condition under which an action profile is achieved as a regular equilibrium of n-player delegation games. In two-player games with misaligned preferences, each efficient action profile violates the necessary condition. We also show that almost action profiles other than efficient ones are achieved as regular equilibria of the delegation game in which the chosen reaction functions are linear. This finding implies that each delegatee’s objective is written as a quadratic function, which may justify the linear-quadratic specification of the objective functions in applications.

Suggested Citation

  • Tajika Tomoya, 2020. "Regular Equilibria and Negative Welfare Implications in Delegation Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 20(1), pages 1-17, January.
    • Handle: RePEc:bpj:bejtec:v:20:y:2020:i:1:p:17:n:7
    DOI: 10.1515/bejte-2018-0056
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    References listed on IDEAS

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    More about this item

    Keywords

    Strategic delegation; inefficiency; regular equilibrium; quadratic objective function;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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