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Limit theorems for recursive delegation equilibria

Author

Listed:
  • Semih Koray

    (Bilkent University)

  • Murat Sertel

    (Founding Editor of Review of Economic Design)

Abstract

Delegation games are studied in the context of a symmetric linear Cournotic duopoly where redelegation is permissible. In the absence of extraneous delegation costs, the following results are demonstrated: (1) Each principal has an incentive to redelegate, increasing the length of his delegation chain. (2) As the length of the delegation chain grows beyond bound, (i) total output at the (Cournot) equilibrium on the industry floor converges in monotonically increasing fashion to the socially efficient one, and (ii) the maximand delegated by each primal delegator converges in monotonically decreasing fashion to the (true) profit function. As a consequence it is suggested that in a linear duopoly context socially efficient and truthful outcomes can be arbitrarily closely approximated by the use of Pretend-but-Perform Mechanisms of order sufficiently large.

Suggested Citation

  • Semih Koray & Murat Sertel, 2022. "Limit theorems for recursive delegation equilibria," Review of Economic Design, Springer;Society for Economic Design, vol. 26(4), pages 679-696, December.
    • Handle: RePEc:spr:reecde:v:26:y:2022:i:4:d:10.1007_s10058-022-00323-5
    DOI: 10.1007/s10058-022-00323-5
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    References listed on IDEAS

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    1. Koray, Semih & Sertel, Murat R., 1990. "Pretend-but-perform regulation and limit pricing," European Journal of Political Economy, Elsevier, vol. 6(4), pages 451-472.
    2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    3. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    4. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    5. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
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    Cited by:

    1. Saglam, Ismail, 2022. "Pretend-But-Perform Regulation of a Duopoly under Three Competition Modes," MPRA Paper 116767, University Library of Munich, Germany.

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