A Model of Delegated Management
Hyung Seok E. Kim1
Received: 13 March 2023 / Accepted: 30 April 2023 /
Published online: 1 June 2023 Ⓒ Korean Social Science Research Council 2023
Abstract The present study offers a dynamic stochastic neoclassical growth model incorporating
agency conflicts between risk-averse managers and shareholders. To examine the latter contracting
problem, Nash-bargained delegation, what this article often refers to as the Nash bargaining
managerial contract for delegated managers, is introduced. This type of delegation facilitates
the manifestation of the “external managing premium,” a discrepancy between the value of the
external managerial job opportunity (transferable across firms) and that of the internal managerial
job opportunity (within the firm organization); in contrast, its Pareto-optimal counterpart
precludes any “external managing premium.” Within the general equilibrium context, the presence
of this premium generates a time-varying investment wedge that distorts the otherwise Paretooptimal
equilibrium investment decision at the aggregate level.
Keywords Nash bargaining․business cycles․delegated management․CEO compensation
JEL classification E32․E44
I