AbstractWe explore the optimal delegation of decision rights by a principal to a better informed but biased agent. In an infinitely repeated game a long-lived principal faces a series of short-lived agents. Every period they play a cheap talk game a la Crawford and Sobel (1982) with constant bias, quadratic loss functions and general distributions of the state of the world. We characterize the optimal delegation schemes for all discount rates and show that they resemble organizational arrangements that are commonly observed, including centralization and threshold delegation. For small biases threshold delegation is optimal for almost all distributions. Outsourcing can only be optimal if the principal is sufficiently impatient.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4870.
Date of creation: Jan 2005
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vijay Krishna & John Morgan, 2008.
"Contracting for information under imperfect commitment,"
RAND Journal of Economics,
RAND Corporation, vol. 39(4), pages 905-925.
- Krishna, Vijay & Morgan, John, 2004. "Contracting for Information under Imperfect Commitment," Competition Policy Center, Working Paper Series qt4010c6w9, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Vijay Krishna & John Morgan, 2005. "Contracting for Information under Imperfect Commitment," Microeconomics 0504006, EconWPA.
- Jonathan Levin, 2000.
"Relational Incentive Contracts,"
01002, Stanford University, Department of Economics.
- Anthony M. Marino & John G. Matsusaka, 2005. "Decision Processes, Agency Problems, and Information: An Economic Analysis of Capital Budgeting Procedures," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 301-325.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994.
"Subjective Performance Measures in Optimal Incentive Contracts,"
The Quarterly Journal of Economics,
MIT Press, vol. 109(4), pages 1125-56, November.
- George Baker & Robert Gibbons & Kevin J. Murphy, 1993. "Subjective Performance Measures in Optimal Incentive Contracts," NBER Working Papers 4480, National Bureau of Economic Research, Inc.
- V. Crawford & J. Sobel, 2010.
"Strategic Information Transmission,"
Levine's Working Paper Archive
544, David K. Levine.
- Harris, Milton & Raviv, Artur, 1996. " The Capital Budgeting Process: Incentives and Information," Journal of Finance, American Finance Association, vol. 51(4), pages 1139-74, September.
- Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer.
- Dessein, Wouter, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 811-38, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.