Indirect evolution vs. strategic delegation: A comparison of two approaches to explaining economic institutions

Martin Dufwenberg; Werner Güth

doi:10.1016/S0176-2680(99)00006-3

Indirect evolution vs. strategic delegation: A comparison of two approaches to explaining economic institutions

Martin Dufwenberg, Werner Güth

Research output: Contribution to journal › Article › peer-review

20 Scopus citations

Abstract

Two major methods of explaining economic institutions are compared for the case of a homogenous quadratic duopoly market. In the indirect evolutionary approach, sellers may evolve to care for sales, in addition to profit. In the strategic delegation approach, sellers may design incentives so that their agents care for sales. The two approaches model different phenomena, but both allow certain kinds of commitment. We investigate under what circumstances the two approaches lead to similar market outcomes. The results underscore the technical similarities as well as the conceptual differences between the two approaches.

Original language	English (US)
Pages (from-to)	281-295
Number of pages	15
Journal	European Journal of Political Economy
Volume	15
Issue number	2
DOIs	https://doi.org/10.1016/S0176-2680(99)00006-3
State	Published - Jun 1999
Externally published	Yes

Keywords

Agency theory
C72
Commitment
D21
D43
Duopoly market
Indirect evolution
Strategic delegation

ASJC Scopus subject areas

Economics and Econometrics
Political Science and International Relations

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10.1016/S0176-2680(99)00006-3

Cite this

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title = "Indirect evolution vs. strategic delegation: A comparison of two approaches to explaining economic institutions",

abstract = "Two major methods of explaining economic institutions are compared for the case of a homogenous quadratic duopoly market. In the indirect evolutionary approach, sellers may evolve to care for sales, in addition to profit. In the strategic delegation approach, sellers may design incentives so that their agents care for sales. The two approaches model different phenomena, but both allow certain kinds of commitment. We investigate under what circumstances the two approaches lead to similar market outcomes. The results underscore the technical similarities as well as the conceptual differences between the two approaches.",

keywords = "Agency theory, C72, Commitment, D21, D43, Duopoly market, Indirect evolution, Strategic delegation",

author = "Martin Dufwenberg and Werner G{\"u}th",

note = "Funding Information: The paper was written while Werner G{\"u}th was visiting CentER. We thank Edward Droste, Manfred K{\"o}nigstein, and two anonymous referees for very helpful comments. Martin Dufwenberg thanks the European Union's HCM-Network project `Games and Markets' organized by Helmut Bester for financial support, Werner G{\"u}th thanks CentER for hospitality. ",

year = "1999",

month = jun,

doi = "10.1016/S0176-2680(99)00006-3",

language = "English (US)",

volume = "15",

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journal = "European Journal of Political Economy",

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T2 - A comparison of two approaches to explaining economic institutions

AU - Dufwenberg, Martin

AU - Güth, Werner

N1 - Funding Information: The paper was written while Werner Güth was visiting CentER. We thank Edward Droste, Manfred Königstein, and two anonymous referees for very helpful comments. Martin Dufwenberg thanks the European Union's HCM-Network project `Games and Markets' organized by Helmut Bester for financial support, Werner Güth thanks CentER for hospitality.

PY - 1999/6

Y1 - 1999/6

N2 - Two major methods of explaining economic institutions are compared for the case of a homogenous quadratic duopoly market. In the indirect evolutionary approach, sellers may evolve to care for sales, in addition to profit. In the strategic delegation approach, sellers may design incentives so that their agents care for sales. The two approaches model different phenomena, but both allow certain kinds of commitment. We investigate under what circumstances the two approaches lead to similar market outcomes. The results underscore the technical similarities as well as the conceptual differences between the two approaches.

AB - Two major methods of explaining economic institutions are compared for the case of a homogenous quadratic duopoly market. In the indirect evolutionary approach, sellers may evolve to care for sales, in addition to profit. In the strategic delegation approach, sellers may design incentives so that their agents care for sales. The two approaches model different phenomena, but both allow certain kinds of commitment. We investigate under what circumstances the two approaches lead to similar market outcomes. The results underscore the technical similarities as well as the conceptual differences between the two approaches.

KW - Agency theory

KW - C72

KW - Commitment

KW - D21

KW - D43

KW - Duopoly market

KW - Indirect evolution

KW - Strategic delegation

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Indirect evolution vs. strategic delegation: A comparison of two approaches to explaining economic institutions

Abstract

Keywords

ASJC Scopus subject areas

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