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Delegation of Authority as an Optimal (In)complete Contract Author info | Abstract | Publisher info | Download info | Related research | Statistics Andreas Roider
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The present paper aims to contribute to the literature on the foundations of incomplete contracts by providing conditions under which simple delegation of authority is the solution to the complete-contracting problem of the parties. We consider a hold-up framework where both parties profit from an investment that raises the value of an asset. Delegation turns out to be optimal if (i) the decision-dependent parts of the payoffs of the parties are linear in the asset value, and (ii) decisions have no investment-independent effect. If overinvestment might be an issue, delegation, however, with restricted competencies is optimal if some additional continuity requirements are met.
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number
bgse8_2003.
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Length: 21
Date of creation: May 2003Date of revision:
Aug 2004Handle: RePEc:bon:bonedp:bgse8_2003Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany Fax: +49 228 73 9221 Web page: http://www.bgse.uni-bonn.de/index.php?id=494
For technical questions regarding this item, or to correct its listing, contact: (Daniel Park).
Keywords: delegation ; decentralization ; authority ; incomplete contracts ; holdup ; property rights ; Other versions of this item:
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 L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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