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Delegation, Risk, and Project Scope

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  • Andreas Roider

Abstract

This paper studies a partial-contracting model where an agent may provide effort to increase a project´s scope before some later (operative) decisions have to be taken. Consistent with existing empirical evidence, we find a positive relationship between exogenous risk and delegation. That is, only if the exogenous risk is sufficiently large may the risk-neutral principal prefer to delegate authority over decisions to the risk-averse agent. Intuitively, for incentive reasons, the principal may optimally want to allow the agent to reduce his risk exposure. Nevertheless, even endogenous risk may be higher when the risk-averse agent has control.

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Bibliographic Info

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

Volume (Year): 165 (2009)
Issue (Month): 2 (June)
Pages: 193-209

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200906)165:2_193:draps_2.0.tx_2-o

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  1. Patrick W. Schmitz, 2005. "Allocating control in agency problems with limited liability and sequential hidden actions," Bonn Econ Discussion Papers bgse27_2005, University of Bonn, Germany.
  2. Poitevin, M., 2000. "Can the Theory of Incentives Explain Devcentralization?," Cahiers de recherche 2000-13, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. Wolfstetter,Elmar, 2000. "Topics in Microeconomics," Cambridge Books, Cambridge University Press, number 9780521645348.
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