| In this paper, we develop a model of strategic delegation in which shareholders maintain an objective of market value maximization (MVM) of the firm's assets as measured by a capital asset pricing model (CAPM). Optimal delegation requires that managers maximize a linear combination of expected profits and firm values. An interesting feature of this model is that optimal delegation contracts of the MVM objective mitigate competition relative to standard price and quantity duopoly outcomes. In the MVM model, the delegation encourages managers to control systematic risk, which leads to greater market coordination, higher profits, and higher stock values. Impacts of degree of product differentiation on delegation under price and quantity competitions are also... |
