Scandinavian Working Papers in Economics
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Department of Economics, Uppsala University Working Paper Series, Department of Economics, Uppsala University

No 1998:9:
Indirect Evolution versus Strategic Delegation: A Comparison of Two Approaches to Explaining Economic Institutions

Martin Dufwenberg () and Werner Güth

Abstract: Two major methods of explaining economic institutions, namely by strategic choices or through (indirect) evolution, are compared for the case of a homogenous quadratic duopoly market. Sellers either can provide incentives for agents to care for sales, or evolve as sellers who care for sales in addition to profits. The two approaches are conceptually quite different, yet similar in the sense that both allow certain kinds of commitment. We show that when the two models are set up in intuitively comparable ways strategic delegation does not change the market results as compared to the usual duopoly solution, while indirect evolution causes a more competitive behavior. Thus the case at hand underscores the differences between the two approaches in explaining economic institutions.

Keywords: Indirect evolution; strategic delgation; commitment; duopoly markets; agency theory; (follow links to similar papers)

JEL-Codes: C72; D21; D43; (follow links to similar papers)

19 pages, March 6, 1998

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This paper is published as:
Dufwenberg, Martin and Werner Güth, (1999), 'Indirect Evolution versus Strategic Delegation: A Comparison of Two Methods for Explaining Economic Institutions', European Journal of Political Economy, Vol. 15, pages 281-295

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