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Delegated Information Acquisition and Capital Budgeting: On the Separation of Project Evaluation and Project Management

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  • Christian Laux
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    Abstract

    The paper analyzes the question who should be provided with incentives to acquire and reveal information about the quality of an investment proposal: the division manager, who derives private benefits of control from the project and always wants to invest, or the capital budgeting department, which has no personal interests in the decision. Interestingly, private benefits of control may reduce expected wage costs. In this case joint project evaluation and project management is optimal.

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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: 591-

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    Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200112)157:4_591:diaacb_2.0.tx_2-8

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    1. Ewerhart, Christian & Schmitz, Patrick W., 2000. ""Yes Men," Integrity, and the Optimal Design of Incentive Contracts," MPRA Paper 12534, University Library of Munich, Germany.
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    Cited by:
    1. Gromb, Denis & Martimort, David, 2004. "The Organization of Delegated Expertise," CEPR Discussion Papers 4572, C.E.P.R. Discussion Papers.
    2. Gromb, Denis & Martimort, David, 2007. "Collusion and the organization of delegated expertise," Journal of Economic Theory, Elsevier, vol. 137(1), pages 271-299, November.
    3. Kim, Doyoung, 2006. "Capital budgeting for new projects: On the role of auditing in information acquisition," Journal of Accounting and Economics, Elsevier, vol. 41(3), pages 257-270, September.

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