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Delegation of Authority as an Optimal (In)complete Contract

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  • Roider, Andreas

    () (University of Regensburg)

Abstract

The present paper aims to contribute to the literature on the foundations of incomplete contracts by providing conditions under which simple delegation of authority is the solution to the complete-contracting problem of the parties. We consider a hold-up framework where both parties profit from an investment that raises the value of an asset. Delegation turns out to be optimal if (i) the decision-dependent parts of the payoffs of the parties are linear in the asset value, and (ii) decisions have no investment-independent effect. If overinvestment might be an issue, delegation, however, with restricted competencies is optimal if some additional continuity requirements are met.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1298.

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Length: 24 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1298

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Related research

Keywords: hold-up; delegation; decentralization; authority; property rights; incomplete contracts;

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References

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Cited by:
  1. Jonathan Treussard, 2005. "Life-Cycle Consumption Plans and Portfolio Policies in a Heath-Jarrow-Morton Economy," Boston University - Department of Economics - Working Papers Series WP2005-033, Boston University - Department of Economics.
  2. Pietro ALESSANDRINI & Andrea PRESBITERO & Alberto ZAZZARO, 2006. "Banks, Distances and Financing Constraints for Firms," Working Papers 266, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

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