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Delegation and Incentives

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  • Bester, Helmut
  • Krahmer, Daniel

Abstract

This paper analyses the relation between authority and incentives. It extends the standard principal--agent model by a project selection stage in which the principal can either delegate the choice of project to the agent or keep the authority. The agent's subsequent choice of effort depends both on monetary incentives and the selected project. We find that the consideration of effort incentives makes the principal less likely to delegate the authority over projects to the agent. In fact, if the agent is protected by limited liability, delegation is never optimal.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6042.

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Date of creation: Jan 2007
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Handle: RePEc:cpr:ceprdp:6042

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Related research

Keywords: Authority; Delegation; Limited liability; Moral hazard; Principal-agent problem;

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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. Helmut Bester, 2009. "Externalities, communication and the allocation of decision rights," Economic Theory, Springer, vol. 41(2), pages 269-296, November.
  3. Sanford J Grossman & Oliver D Hart, 2001. "An Analysis of the Principal-Agent Problem," Levine's Working Paper Archive 391749000000000339, David K. Levine.
  4. Dessein, Wouter, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 811-38, October.
  5. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
  6. Riordan, Michael H & Sappington, David E M, 1987. "Information, Incentives, and Organizational Mode," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 243-63, May.
  7. Susan Athey & John Roberts, 2001. "Organizational Design: Decision Rights and Incentive Contracts," American Economic Review, American Economic Association, vol. 91(2), pages 200-205, May.
  8. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  9. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
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Citations

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Cited by:
  1. Tymofiy Mylovanov & Andriy Zapechelnyuk, 2010. "Decision Rules for Experts with Opposing Interests," Working Papers 674, Queen Mary, University of London, School of Economics and Finance.
  2. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Spending: Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 17 Oct 2009.
  3. Matthias Kräkel, 2013. "Authority and Incentives in Organizations," Bonn Econ Discussion Papers bgse03_2013, University of Bonn, Germany.
  4. Charness, Gary & Cobo-Reyes, Ramón & Lacomba, Juan A. & Lagos, Francisco & Pérez, José María, 2013. "Social Comparisons in Wage Delegation: Experimental Evidence," IZA Discussion Papers 7802, Institute for the Study of Labor (IZA).
  5. DeVaro, Jed & Prasad, Suraj, 2013. "The Relationship Between Delegation and Incentives Across Occupations: Evidence and Theory," Working Papers 2013-05, University of Sydney, School of Economics.
  6. Heikki Rantakari, 2012. "Employee Initiative and Managerial Control," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 171-211, August.
  7. Friehe, Tim, 2013. "Tempting righteous citizens? Counterintuitive effects of increasing sanctions in the realm of organized crime," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 44(C), pages 37-40.
  8. Bester, Helmut & Krähmer, Daniel, 2013. "Exit options and the allocation of authority," Discussion Papers 2013/5, Free University Berlin, School of Business & Economics.
  9. Miriam Schütte & Philipp Christoph Wichardt, 2013. "Delegation and Interim Performance Evaluation," CESifo Working Paper Series 4193, CESifo Group Munich.

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