We study managerial delegation in a production economy with a continuum of shareholders who hold heterogeneous beliefs about the firm’s technology. Financial markets aggregate these beliefs into a consensus belief that moves with the state of the economy and, as soon as some shareholders disagree about the sign of the risk premium, the production plan that shareholders unanimously prefer calls for a positive exposure to risk in some states and for a negative one in others. Implementation is delegated to a manager with fixed beliefs, whose compensation depends on the firm’s own performance and can neither be traded nor hedged. For an arbitrary distribution of beliefs, we show that no such compensation scheme can induce the manager to implement the consensus plan on the whole set of outcomes. Implementation then requires an endogenous stopping rule under which the manager receives a termination payment that is strictly positive, decreasing in the dismissal date and generated by belief dispersion. Finally, delegation to a team of managers who jointly choose the production plan and share a compensation pool restores global implementation if and only if their beliefs are symmetric about the pivotal belief.

Zoom Meeting link:  texastech.zoom.us/j/3067000354

Meeting ID:  306 700 0354

Passcode:      TTUMF