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Repeated delegation

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  • Lipnowski, Elliot
  • Ramos, João

Abstract

In an ongoing relationship of delegated decision making, a principal consults a biased agent to assess projects' returns. In equilibrium, the principal allows future bad projects to reward fiscal restraint, but cannot commit to indefinite rewards. We characterize equilibrium payoffs (at fixed discounting), showing that Pareto optimal equilibria are implemented via a two-regime ‘Dynamic Capital Budget’. Rather than facing backloaded rewards—as in dynamic agency models with commitment power—the agent loses autonomy as time progresses.

Suggested Citation

  • Lipnowski, Elliot & Ramos, João, 2020. "Repeated delegation," Journal of Economic Theory, Elsevier, vol. 188(C).
    • Handle: RePEc:eee:jetheo:v:188:y:2020:i:c:s0022053118303260
    DOI: 10.1016/j.jet.2020.105040
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    Cited by:

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    2. Daniel Bird & Alexander Frug, 2021. "Optimal Contracts with Randomly Arriving Tasks," The Economic Journal, Royal Economic Society, vol. 131(637), pages 1905-1918.
    3. Ying Chen & Hulya Eraslan, 2018. "Learning While Setting Precedents," Koç University-TUSIAD Economic Research Forum Working Papers 1810, Koc University-TUSIAD Economic Research Forum.
    4. Axel Niemeyer & Justus Preusser, 2023. "Simple Allocation with Correlated Types," CRC TR 224 Discussion Paper Series crctr224_2023_486, University of Bonn and University of Mannheim, Germany.
    5. Kolotilin, Anton & Li, Hongyi, 2021. "Relational communication," Theoretical Economics, Econometric Society, vol. 16(4), November.
    6. Guo, Yingni & Hörner, Johannes, 2020. "Dynamic Allocation without Money," TSE Working Papers 20-1133, Toulouse School of Economics (TSE).
    7. Yingni Guo & Johannes Hörner, 2021. "Dynamic Allocation without Money," Working Papers hal-03187506, HAL.
    8. Kuvalekar, Aditya & Lipnowski, Elliot & Ramos, João, 2022. "Goodwill in communication," Journal of Economic Theory, Elsevier, vol. 203(C).
    9. Matthew Mitchell, 2018. "Free (Ad)vice," 2018 Meeting Papers 1194, Society for Economic Dynamics.
    10. Marina Halac & Pierre Yared, 2017. "Fiscal Rules and Discretion under Self-Enforcement," NBER Working Papers 23919, National Bureau of Economic Research, Inc.
    11. Chen, Ying & Oliver, Atara, 2023. "When to ask for an update: Timing in strategic communication," Journal of Economic Theory, Elsevier, vol. 211(C).
    12. Rohit Lamba & Ilia Krasikov, 2017. "A Theory of Dynamic Contracting with Financial Constraints," 2017 Meeting Papers 1544, Society for Economic Dynamics.
    13. Rantakari, Heikki, 2023. "How to reward honesty?," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 129-145.
    14. Solan, Eilon & Zhao, Chang, 2021. "Dynamic monitoring under resource constraints," Games and Economic Behavior, Elsevier, vol. 129(C), pages 476-491.
    15. Kishishita, Daiki, 2020. "(Not) delegating decisions to experts: The effect of uncertainty," Journal of Economic Theory, Elsevier, vol. 190(C).
    16. Meng, Delong, 2021. "On the value of repetition for communication games," Games and Economic Behavior, Elsevier, vol. 127(C), pages 227-246.

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    More about this item

    Keywords

    Delegation; Limited commitment; Repeated game; Capital budgeting;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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