AMBIGUITY BETWEEN PIRATE INCENTIVE AND COLLECTIVE DESIRABILITY WITHIN SEMI-DELEGATION PATTERN

Abstract

This paper extends the literature on strategic delegation to a model with a semi-delegation structure. We investigate how the level of spillovers and the degree of product differentiation affect the owner's decision. It is found that owners face a prisoner's dilemma when the spillover is very small or when the products are sufficiently differentiated. Concerning behavior, managers act less aggressively in the pure market, where there are delegated-firms, than in the mixed market, where entrepreneurial and managerial firms co-exist. Furthermore, we highlight the existence of ambiguous areas where delegations make firms profitable, but unable to generate desirable welfare.