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Transferable Control

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  • Rey, Patrick
  • Dewatripont, Mathias
  • Aghion, Philippe

Abstract

In this paper, we introduce the notion of transferable control, defined as a situation where one party (the principal, say) can transfer control to another party (the agent) but cannot commit herself to do so. One theoretical foundation for this notion builds on the distinction between formal and real authority introduced by Aghion and Tirole, in which the actual exercise of authority may require noncontractible information, absent which formal control rights are vacuous. We use this notion to study the extent to which control transfers may allow an agent to reveal information regarding his ability or willingness to cooperate with the principal in the future. We show that the distinction between contractible and transferable control can drastically influence how learning takes place: with contractible control, information about the agent can often be acquired through revelation mechanisms that involve communication and message-contingent control allocations; in contrast, when control is transferable but not contractible, it can be optimal to transfer control unconditionally and learn instead from the way in which the agent exercises control.

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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4481511.

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Date of creation: 2004
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Publication status: Published in Journal of the European Economic Association
Handle: RePEc:hrv:faseco:4481511

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References

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  1. Patrick Legros & Andrew F. Newman, 2008. "Competing for Ownership," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1279-1308, December.
  2. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 2002. "On partial contracting," European Economic Review, Elsevier, vol. 46(4-5), pages 745-753, May.
  3. Aghion, P. & Dewatripont, M. & Rey, P., 2004. "Transferable Control," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  4. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
  5. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, September.
  6. Legros, Patrick & Matthews, Steven A, 1993. "Efficient and Nearly-Efficient Partnerships," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 599-611, July.
  7. Mathias Dewatripont, 2006. "Transferable control," ULB Institutional Repository 2013/9649, ULB -- Universite Libre de Bruxelles.
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