Delegation versus centralization: The role of externalities
AbstractWe study a simple contracting game with a principal and two agents. Contracts exert an externalities on non contractors. The principal can either contract both agents in a centralized manner, or delegate one agent to contract the other. We show that the choice of the principal depends on the sign of the externality. If this is positive, the principal prefers to delegate as long as the agency costs are not too high; if the externality is negative, the principal prefers to centralize for all sizes of agency costs.
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Bibliographic InfoArticle provided by Elsevier in its journal Research in Economics.
Volume (Year): 60 (2006)
Issue (Month): 2 (June)
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Web page: http://www.elsevier.com/locate/inca/622941
Other versions of this item:
- Sergio Currarini & Francesco Feri, 2006. "Delegation Versus Centralization: The Role of Externalities," Working Papers 2006_15, Department of Economics, University of Venice "Ca' Foscari".
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Garance Genicot & Debraj Ray, 2003.
"Contracts and Externalities: How Things Fall Apart,"
Levine's Working Paper Archive
506439000000000235, David K. Levine.
- Genicot, Garance & Ray, Debraj, 2006. "Contracts and externalities: How things fall apart," Journal of Economic Theory, Elsevier, vol. 131(1), pages 71-100, November.
- Garance Genicot and Debraj Ray, 2003. "Contracts and Externalities: How Things Fall Apart," Working Papers gueconwpa~03-03-30, Georgetown University, Department of Economics.
- Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
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