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Delegation of Authority as an Optimal (In)Complete Contract

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  • Andreas Roider

Abstract

This paper contributes to the literature on the foundations of incomplete contracts. In a holdup framework, we provide two sets of conditions under which simple delegation of authority is the solution to the complete-contracting problem. In cases where overinvestment can be ruled out, delegation is optimal if the payoffs of the parties satisfy certain separability conditions. If overinvestment might be an issue, delegation (possibly with restricted competencies) is optimal if additionally some continuity requirements are met. The paper also contributes to the literature on delegation, where such replication results have previously been derived in settings with asymmetric information.

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Bibliographic Info

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

Volume (Year): 162 (2006)
Issue (Month): 3 (September)
Pages: 391-411

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200609)162:3_391:doaaao_2.0.tx_2-n

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References

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  1. Georg Nöldeke & Klaus M. Schmidt, 1992. "Option Contracts and Renegotiation - A Solution to the Hold-Up Problem," Discussion Paper Serie A 417, University of Bonn, Germany, revised Aug 1993.
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  19. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 57-82, January.
  20. Sandeep Baliga & Tomas Sjostrom, 1999. "Optimal Design of Peer Review and Self-Assessment Schemes," Discussion Papers 1290, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Cited by:
  1. Pietro Alessandrini & Andrea F. Presbitero & Alberto Zazzaro, 2007. "Banks, distances, and financing constraints for firms," Proceedings 1053, Federal Reserve Bank of Chicago.
  2. Jonathan Treussard, 2005. "Life-Cycle Consumption Plans and Portfolio Policies in a Heath-Jarrow-Morton Economy," Boston University - Department of Economics - Working Papers Series WP2005-033, Boston University - Department of Economics.
  3. Theilen, Bernd, 2009. "Decentralization and the Gains from Monitoring," Working Papers 2072/42863, Universitat Rovira i Virgili, Department of Economics.

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