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The Organization of Delegated Expertise

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  • Martimort, David
  • Gromb, Denis

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.

Suggested Citation

  • Martimort, David & Gromb, Denis, 2004. "The Organization of Delegated Expertise," CEPR Discussion Papers 4572, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4572
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    11. Christian Laux, 2001. "Delegated Information Acquisition and Capital Budgeting: On the Separation of Project Evaluation and Project Management," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 591-607, December.
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    Cited by:

    1. Roman Inderst & Manuel Klein, 2007. "Innovation, endogenous overinvestment, and incentive pay," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 881-904, December.
    2. Szalay, Dezsö, 2009. "Contracts with endogenous information," Games and Economic Behavior, Elsevier, vol. 65(2), pages 586-625, March.
    3. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, screening and syndication in venture capital investments," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 368-398, July.
    4. Feess Eberhard & Walzl Markus & Schieble Michael, 2011. "Why it Pays to Conceal: On the Optimal Timing of Acquiring Verifiable Information," German Economic Review, De Gruyter, vol. 12(1), pages 100-123, February.
    5. Bourjade, Sylvain, 2002. "Diversification of Investor's Expertise in IPOs," MPRA Paper 7259, University Library of Munich, Germany, revised Dec 2007.
    6. Doh Shin Jeon, "undated". "Relying on the agent in charge of production for project evaluation," Economics Working Papers 623, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2006.
    7. Dezsö Szalay & Ramon Arean, 2005. "Communicating with a Team of Experts," Cahiers de Recherches Economiques du Département d'économie 05.12, Université de Lausanne, Faculté des HEC, Département d’économie.
    8. Salvatore Piccolo & Emanuele Tarantino, 2011. "Managerial Compensations and Information Sharing under Moral Hazard: Is Transparency Good?," CSEF Working Papers 294, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    9. Virginie Baritaux & Magali Aubert & Etienne Montaigne & Hervé Remaud, 2006. "Matchmakers in wine marketing channels: The case of French wine brokers," Agribusiness, John Wiley & Sons, Ltd., vol. 22(3), pages 375-390.
    10. Martimort, David & Semenov, Aggey, 2008. "The informational effects of competition and collusion in legislative politics," Journal of Public Economics, Elsevier, vol. 92(7), pages 1541-1563, July.
    11. Di Maggio, Marco, 2009. "Accountability and Cheap Talk," MPRA Paper 18652, University Library of Munich, Germany.
    12. , & ,, 2012. "A principal-agent model of sequential testing," Theoretical Economics, Econometric Society, vol. 7(3), September.
    13. Isabelle Brocas & Juan D. Carillo, 2005. "A Theory of Influence: The Strategic Value of Public Ignorance," IEPR Working Papers 05.9, Institute of Economic Policy Research (IEPR).
    14. Guillaume Roger, 2013. "Optimal Contract under Moral Hazard with Soft Information," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 55-80, November.
    15. repec:dau:papers:123456789/5963 is not listed on IDEAS
    16. Salvatore Piccolo, 2011. "Communicating Vertical Hierarchies: the Adverse Selection Case," CSEF Working Papers 273, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    17. Semenov, Aggey & Martimort, David, 2004. "Communication by Interest Groups and the Organization of Lobbying," MPRA Paper 8519, University Library of Munich, Germany.
    18. Andres Zambrano, 2019. "Motivating informed decisions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(3), pages 645-664, April.
    19. Piccolo, Salvatore & Pagnozzi, Marco, 2013. "Information sharing between vertical hierarchies," Games and Economic Behavior, Elsevier, vol. 79(C), pages 201-222.
    20. Guillaume Roger, 2013. "Moral Hazard with Discrete Soft Information," The Economic Record, The Economic Society of Australia, vol. 89(287), pages 545-555, December.
    21. Doh-Shin Jeon, 2003. "A Theory of Information Flows," Working Papers 77, Barcelona School of Economics.

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    More about this item

    Keywords

    Expertise; Organization; Collusion;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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