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Delegation and Information Revelation

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  • Axel Gautier
  • Dimitri Paolini

Abstract

This paper analyzes, in a setup where only the control over actions is contractible, the rationale for delegation. An organization must take two decisions. The payoffs are affected by a random parameter, and only the agent knows its realization. If the principal delegates the control over the first decision tothe agent, his choice may indicate the information that he possesses. If the principal retains control over the second decision, discovering this information is valuable. Hence, this paper provides a new rationale for delegation: A transfer of control to the informed party can be used to discover private information.

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Bibliographic Info

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

Volume (Year): 163 (2007)
Issue (Month): 4 (December)
Pages: 574-597

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200712)163:4_574:dair_2.0.tx_2-g

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  1. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-75, September.
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  3. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
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  6. Martimort, David, 1997. " A Theory of Bureaucratization Based on Reciprocity and Collusive Behavior," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(4), pages 555-79, December.
  7. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Legros Patrick, 1993. "Information Revelation in Repeated Delegation," Games and Economic Behavior, Elsevier, vol. 5(1), pages 98-117, January.
  9. Milton Harris & Artur Raviv, 1997. "Capital Budgeting and Delegation," CRSP working papers 452, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  10. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  11. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July.
  12. Armstrong, M., 1994. "Delegation and discretion," Discussion Paper Series In Economics And Econometrics 9421, Economics Division, School of Social Sciences, University of Southampton.
  13. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  14. John G. Riley, 1976. "Informational Equilibrium," UCLA Economics Working Papers 071, UCLA Department of Economics.
  15. Felli, Leonardo & Hortala-Vallve, Rafael, 2011. "Preventing Collusion through Discretion," CEPR Discussion Papers 8302, C.E.P.R. Discussion Papers.
  16. Melumad, Nahum & Mookherjee, Dilip & Reichelstein, Stefan, 1992. "A theory of responsibility centers," Journal of Accounting and Economics, Elsevier, vol. 15(4), pages 445-484, December.
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Cited by:
  1. Krahmer, Daniel, 2006. "Message-contingent delegation," Journal of Economic Behavior & Organization, Elsevier, vol. 60(4), pages 490-506, August.
  2. Axel Gautier & Dimitri Paolini, 2007. "Delegation, Externalities and Organizational Design," CREPP Working Papers 0709, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.

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