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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.

Suggested Citation

  • Dirk Sliwka, 2001. "On the Costs and Benefits of Delegation in Organizations," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 568-590, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200112)157:4_568:otcabo_2.0.tx_2-0
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    References listed on IDEAS

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    Cited by:

    1. Ernst Fehr & Holger Herz & Tom Wilkening, 2013. "The Lure of Authority: Motivation and Incentive Effects of Power," American Economic Review, American Economic Association, vol. 103(4), pages 1325-1359, June.
    2. 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 2358-2379, August.
    3. Danilov, Anastasia & Harbring, Christine & Irlenbusch, Bernd, 2014. "Helping in Teams," IZA Discussion Papers 8707, Institute of Labor Economics (IZA).
    4. Dirk Sliwka, 2006. "On the Notion of Responsibility in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(2), pages 523-547, October.
    5. Christian Brück & Thorsten Knauer & Harald Meier & Anja Schwering, 2021. "Self-set salaries and creativity," Journal of Business Economics, Springer, vol. 91(1), pages 91-121, February.
    6. Frank, Björn & Herbas-Torrico, Boris & Schvaneveldt, Shane J., 2021. "The AI-extended consumer: Technology, consumer, country differences in the formation of demand for AI-empowered consumer products," Technological Forecasting and Social Change, Elsevier, vol. 172(C).

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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