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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Volume (Year): 162 (2006) Issue (Month): 3 (September) Pages: 391-411 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
McAfee, R. Preston & McMillan, John., 1990.
"Organizational Diseconomies of Scale,"
Working Papers
728, California Institute of Technology, Division of the Humanities and Social Sciences.
[Downloadable!]
Sandeep Baliga & Tomas Sjostrom, 1998.
"Decentralization and Collusion,"
Discussion Papers
1210, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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