Strategic Delegation of Multiple Tasks

20 Pages Posted: 24 Oct 2014

See all articles by Pei-Cheng Liao

Pei-Cheng Liao

National Taiwan University - Department of Accounting

Date Written: June 2014

Abstract

This paper studies both the owner–manager relationship and the union–firm relationship in a model of unionised duopoly to analyse whether a firm's owner delegates the task of wage bargaining to a manager along with the task of output determination. We also analyse the profit and welfare effects of multiple‐task delegation. It has been shown in the literature that, when there is only one delegation task – output determination – delegation of output decisions to managers leads to lower profits for owners than non‐delegation as pure profit‐maximisation. However, when there are two delegation tasks as in our model – output determination and wage bargaining – we show that owners are better off delegating both tasks than delegating only the output decision or not delegating at all. This result provides a rationale and managerial insight for strategically delegating multiple tasks to managers. Moreover, we show that union utility, consumer surplus and social welfare are all higher when owners do not delegate the task of wage bargaining than when they do. This result suggests that governments implement union contracts that require owners, rather than managers, to negotiate wages with unions in order to benefit unions and consumers and to improve social welfare as well.

Suggested Citation

Liao, Pei-Cheng, Strategic Delegation of Multiple Tasks (June 2014). Australian Economic Papers, Vol. 53, Issue 1-2, pp. 77-96, 2014. Available at SSRN: https://ssrn.com/abstract=2514067 or http://dx.doi.org/10.1111/1467-8454.12022

Pei-Cheng Liao (Contact Author)

National Taiwan University - Department of Accounting ( email )

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