Delegation in Oligopoly: Managerial Schemes and Loan Commitments

This paper examines an industry in which firms must arrange financing for the production levels they plan to undertake in equilibrium. Financing can rely on the spot, or it can be obtained from options in the form of loan commitments. In that context, we analyze whether the owners of the firms centralize financing and output decisions or delegate these decisions to managers. We show a multiplicity of equilibria from a number of organizational modes under delegation. An organizational form where the owner decides on short-term financing but delegates production with a long-term managerial scheme is not an equilibrium organizational form.