Managerial delegation in monopoly and social welfare

Abstract This paper develops a model of managerial delegation in the case of monopoly, without relying on agency theory based arguments, and examines its implications for social welfare. It shows that, in the presence of network externalities, (a) it is optimal for a monopolist to offer a sales‐oriented incentive scheme to her manager and (b) such managerial delegation in monopoly firm is socially desirable: both the monopolist and consumers are better off under managerial delegation than under no delegation. These results are in sharp contrast to the findings of existing studies on managerial delegation.