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Allocation of Decision-Making Authority with Principal's Reputation Concerns

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  • Tsung-Sheng Tsai
  • Yasunari Tamada

Abstract

This paper analyzes the allocation of decision-making authority when the principal has reputation concerns. The principal can either keep the authority and consult the agent (an expert), or delegate the authority to the agent; however, the outside evaluator cannot observe the allocation of authority. Hence, delegation can provide a way to manipulate the principal's ex post reputation. In general, the principal keeps the authority too often when she has the opportunity of delegation. When the evaluator believes that the agent may make the decision sometimes, the principal has less incentive to make the right decisions

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File URL: http://repec.org/esFEAM04/up.19931.1080716758.pdf
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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 701.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:701

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Keywords: Delegation; Principal's Reputation Concerns; Cheap Talk;

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  1. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
  3. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  4. Milton Harris & Artur Raviv, 2005. "Allocation of Decision-making Authority," Review of Finance, Springer, vol. 9(3), pages 353-383, 09.
  5. Stephen Morris, 1999. "Political Correctness," Cowles Foundation Discussion Papers 1242, Cowles Foundation for Research in Economics, Yale University.
  6. Fredrik Andersson, 2002. "Career Concerns, Contracts, and Effort Distortions," Journal of Labor Economics, University of Chicago Press, vol. 20(1), pages 42-58, January.
  7. Marco Ottaviani & Peter Sorensen, 1999. "Professional Advice," Game Theory and Information 9906003, EconWPA.
  8. Sean Gailmard, 2002. "Expertise, Subversion, and Bureaucratic Discretion," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(2), pages 536-555, October.
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