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Optimal Delegation

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  • Alonso, Ricardo
  • Matouschek, Niko

Abstract

We analyse the optimal delegation of decision rights by a uninformed principal to an informed but biased agent. When the principal cannot use message-contingent transfers, she offers the agent a set of decisions from which he can choose his preferred one. We fully characterize the optimal delegation set for general distributions of the state space and preferences with arbitrary continuous state-dependent biases. We also provide necessary and sufficient conditions for particular delegation sets to be optimal. Finally, we show that the optimal delegation set takes the form of a single interval if the agent's preferences are sufficiently similar to the principal's.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5289.

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Date of creation: Oct 2005
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Handle: RePEc:cpr:ceprdp:5289

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Keywords: decision rights; delegation; mechanism design;

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References

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  1. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  2. Strausz, Roland, 2003. "Deterministic mechanisms and the revelation principle," Economics Letters, Elsevier, vol. 79(3), pages 333-337, June.
  3. Harris, Milton & Raviv, Artur, 1998. "Capital budgeting and delegation," Journal of Financial Economics, Elsevier, Elsevier, vol. 50(3), pages 259-289, December.
  4. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Alonso, Ricardo & Matouschek, Niko, 2005. "Relational Delegation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4870, C.E.P.R. Discussion Papers.
  6. Dezs� Szalay, 2005. "The Economics of Clear Advice and Extreme Options," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 1173-1198.
  7. Michael C. Jensen & William H. Heckling, 1995. "Specific And General Knowledge, And Organizational Structure," Journal of Applied Corporate Finance, Morgan Stanley, vol. 8(2), pages 4-18.
  8. 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.
  9. Harris, Milton & Raviv, Artur, 1996. " The Capital Budgeting Process: Incentives and Information," Journal of Finance, American Finance Association, American Finance Association, vol. 51(4), pages 1139-74, September.
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