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The Organization of Delegated Expertise

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  • Gromb, Denis
  • Martimort, David

Abstract

This Paper proposes a theory of the optimal organization of delegated expertise. For incentive purposes, a principal should reward an expert when their recommendation is confirmed either by the facts or by other experts’ recommendations. With a single expert, we show that the agency costs of delegated expertise exhibit diseconomies of scale. Possible organizational responses to this problem include basing decisions on a less than optimal amount of information, and relying on multiple experts. We analyse the source of gains from having multiple experts in different contracting environments corresponding to different nexi of collusion between the principal and/or the experts.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4572.

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Date of creation: Aug 2004
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Handle: RePEc:cpr:ceprdp:4572

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Keywords: collusion; expertise; organization;

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  1. Osband, Kent, 1989. "Optimal Forecasting Incentives," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1091-1112, October.
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  12. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  13. Robert Dur & Otto H. Swank, 2005. "Producing and Manipulating Information," Economic Journal, Royal Economic Society, vol. 115(500), pages 185-199, 01.
  14. Mookherjee, Dilip, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 433-46, July.
  15. Boot, Arnoud W A, 1992. " Why Hang on to Losers? Divestitures and Takeovers," Journal of Finance, American Finance Association, vol. 47(4), pages 1401-23, September.
  16. Laux, Christian, 2001. "Limited-Liability and Incentive Contracting with Multiple Projects," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 514-26, Autumn.
  17. Dow, James & Raposo, Clara, 2002. "Active Agents, Passive Principals: Does High-Powered CEO Compensation Really Improve Incentives," CEPR Discussion Papers 3309, C.E.P.R. Discussion Papers.
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