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Corresponding Author:
Luciano Fanti, Department of Economics and Management, University of Pisa, Italy

Coauthors:
Domenico Buccella , Kozminsky University, Warsaw, Poland

Firms Controlled by Owners and Managerial Firms: The 'Strategic' Trade Policy Game Revisited

Volume 71 - Issue 1, February 2018
(pp. 51-72)
JEL classification: F16, J51, L13
Keywords: Export Subsidy/Tax, Prisoner's Dilemma, Managerial Delegation, Owner-Manager Bargaining, Cournot Duopoly

Abstract

This paper re-examines the strategic trade policy issue by considering a bargaining process over managerial contracts and different firms’ organizational structures; that is, either family ownership or atomistic shareholders whose board of directors delegate output choice to managers keep control over the firm. We show that, in contrast to the traditional results, a plethora of Nash equilibria emerges and the implementation of trade policies in both countries may be efficient (i.e. national social welfares are higher than under free trade) in the presence of a bargaining process in a sales delegation game. Such equilibria depend on the manager's bargaining power as well as the degree of product competition. The paper’s findings suggest that trade policy-makers should also take into account the ownership structure and the corresponding organizational form of the exporting firms.

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Firms Controlled by Owners and Managerial Firms: The 'Strategic' Trade Policy Game Revisited

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Institute for International Economics of the Genoa Chamber of Commerce

Institute for International Economics
of the Genoa Chamber of Commerce