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Management Centrality in Sequential Bargaining: Implications for Strategic Delegation, Welfare, and Stakeholder Conflict

Authors
  • Buccella, Domenico
  • Meccheri, Nicola
Type
Published Article
Journal
The B.E. Journal of Theoretical Economics
Publisher
De Gruyter
Publication Date
Sep 18, 2023
Volume
24
Issue
1
Pages
159–193
Identifiers
DOI: 10.1515/bejte-2022-0076
Source
De Gruyter
Keywords
Disciplines
  • Research Article
License
Yellow

Abstract

This paper investigates the issue of strategic delegation by considering the role of management centrality in contracting with different stakeholders. In a sequential negotiation unionized duopoly model, the results obtained by profit-maximizing entrepreneurial firms (where strategic choices are taken by firm owners and wage bargaining involves owners and unions) are compared against those of managerial firms (where strategic choices are delegated to managers who are also involved in wage bargaining vis-à-vis unions). Differences in the relative bargaining power among stakeholders (owners, managers and unions) play a key role in determining optimal delegation contracts, as well as the endogenous choice by firm owners to delegate strategic decisions to the management. Moreover, the distribution of stakeholders’ relative bargaining power affects firms’ profitability and overall welfare. In particular, to minimize potential conflict of interests between firm owners and the overall society, regulation directed to soften the managers’ bargaining strength vis-à-vis shareholders must be designed and implemented.

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