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On the Costs and Benefits of Delegation in Organizations

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  • Dirk Sliwka

Abstract

We examine the question whether a decision should be delegated to a subordinate and whether this is done efficiently. We illustrate in a dynamic principal-agent model that delegation is useful for several reasons. First, it serves to test agents with unknown ability. Then, it may improve an agent's motivation when carrying out decisions as successful outcomes improve his reputation and hence his future wages. Costs of delegation arise from the risk of having decisions of lower quality and because after having made a successful decision a subordinate's power is increased. The latter effect may lead to inefficient delegation decisions.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 157 (2001)
Issue (Month): 4 (December)
Pages: 568-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200112)157:4_568:otcabo_2.0.tx_2-0

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Cited by:
  1. Dirk Sliwka, 2006. "On the Notion of Responsibility in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(2), pages 523-547, October.
  2. Ernst Fehr & Holger Herz & Tom Wilkening, 2012. "The lure of authority: Motivation and incentive effects of power," UBSCENTER - Working Papers 002, UBS International Center of Economics in Society - Department of Economics - University of Zurich.
  3. Gary Charness & Ramon Cobo-Reyes & Natalia Jimenez & Juan A. Lacomba & Francisco Lagos, 2012. "The Hidden Advantage of Delegation: Pareto Improvements in a Gift Exchange Game," American Economic Review, American Economic Association, vol. 102(5), pages 2358-79, August.

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