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Managerial Delegation Contracts in a Cournot Duopoly with Pollution
1 : La Trobe University, Melbourne
2 : ICRE8
3 : International Business School Suzhou, Xi'an Jiaotong-Liverpool University
* : Corresponding author
We introduce an explicit environmental incentive into a managerial compensation contract under an emissions tax regime in the context of a Cournot duopoly with pollution externalities. We show that, depending on the effectiveness of “green” R&D, compared to a standard sales compensation contract, a manager conducts more abatement. As a consequence, the regulator sets a lower emissions tax, and social welfare is higher. Moreover, in general, firm owners earn higher profits when using the environmental delegation contract.
