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On the Costs and Benefits of Delegation in Organizations

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Author Info
Dirk Sliwka

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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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Publisher 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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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation

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  1. Sliwka, Dirk, 2004. "On the Notion of Responsibility in Organizations," IZA Discussion Papers 1423, Institute for the Study of Labor (IZA). [Downloadable!]
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This page was last updated on 2009-12-10.

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