‘Green’ managerial delegation theory

Abstract

This article develops a non-cooperative game with managerial quantity-setting firms in which owners choose whether to delegate output and abatement decisions to managers through a contract based on emissions (conventionally denoted as ‘green’ delegation, GD) instead of sales (sales delegation, SD), and the government levies an emissions tax to incentivise firms’ emissions-reduction actions. First, it compares the Nash equilibrium outcomes between GD and SD and then contrasts them also with profit maximisation (PM). A plethora of Nash equilibria emerges, especially in the case GD versus PM (the ‘green delegation game’), depending on the public awareness toward environmental quality, ranging from the coordination game to the ‘green’ prisoner's dilemma. Second, though the contract under GD incentivises managers for emissions, the environmental damage is lower than under SD. This is because the optimal tax more than compensates the incentive for emissions. These findings suggest that designing GD contracts paradoxically favours environmental quality.

Managerial firms’ profitability, unions, and environmental taxes

“…In this sense, it augments the endogenous game studied in Buccella et al. (2021) by introducing an imperfect labour market with decentralized or firm‐specific monopoly unions that aim at setting the wage rate at a higher level than the market‐clearing wage.…”

“…Compared to those works, the present article introduces environmental concerns (pollution externalities) and (welfare maximizing) emission taxes in a modelling setting with sales delegation and trade unions. On the other hand, it also follows the recent work of Buccella et al (2021), who concentrate on environmental issues and managers' abatement decisions in a Cournot game in which the choice between either "green" delegation (GD) or sales delegation (SD) contracts and profit maximization is endogenous, in which the GD contract is based on emissions instead of sales. Compared to that work, the present article introduces the trade unions' behaviour as a new factor in the context in which the managerial contract is standardly based on sales volume and in which firms adopt a cleaning technology.…”

“…This section provides insights about the firms' choice of being sales delegated or profit maximizers in an environment with negative pollution externalities when the government levies a welfare-maximizing emission tax to incentivize firms to undertake emission-reduction actions. In this sense, it augments the endogenous game studied in Buccella et al (2021) by introducing an imperfect labour market with decentralized or firm-specific monopoly unions that aim at setting the wage rate at a higher level than the market-clearing wage.…”

“…We pinpoint that the results presented in this section assuming homogeneous products holds also under the assumption of horizontal differentiation. each manager's utility is 𝑢 𝑖 = 𝜋 𝑖 + 𝑏 𝑖 (𝑞 𝑖 − 𝑎 𝑖 ) (Buccella et al, 2021), where owners select the positive or negative weight 𝑏 𝑖 to maximize profits. The qualitative results are all confirmed.…”

Emission taxation, green R&D, and managerial delegation contracts with environmental and sales incentives

“…For example, Hirose et al (2017Hirose et al ( , 2020 and Park (2019, 2021) examined firms' self-regulatory initiative toward abatement activities under different market structures wherein firms emit pollution and engage voluntarily in emission reduction via ECSR activities. Poyago-Theotoky and Yong (2019), Buccella et al (2021Buccella et al ( , 2022, Xu and Lee (2022), andXu et al (2022) utilized a framework of managerial delegation under an emission tax policy.…”