AbstractWe analyse the design of decision rules by a principal who faces an informed but biased agent and who is unable to commit to contingent transfers. The contracting problem reduces to a delegation problem in which the principal commits to a set of decisions from which the agent chooses his preferred one. We characterize the optimal delegation set and perform comparative statics on the principal's willingness to delegate and the agent's discretion. We also provide conditions for interval delegation to be optimal and show that they are satisfied when the agent's preferences are sufficiently aligned. Finally, we apply our results to the regulation of a privately informed monopolist and to the design of legislatives rules. Copyright 2008, Wiley-Blackwell.
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Bibliographic InfoArticle provided by Oxford University Press in its journal The Review of Economic Studies.
Volume (Year): 75 (2008)
Issue (Month): 1 ()
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Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
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