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Optimal Delegation with a Finite Number of States

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  • Vincent Anesi

    (University of Nottingham)

  • Daniel J. Seidmann

    (University of Nottingham)

Abstract

This paper contributes to the literature on optimal delegation, dating back to Holmstrom's (1984) seminal work. In contrast to models in the Holmstrom tradition, we assume that the set of states is finite. We provide a full characterization of the class of optimal delegation sets under this assumption, and show that they have a different structure from that in the continuous-state model. As the number of states tends to infinity, however, every optimal delegation set converges to that of Holmstrom (1984). We also show that, for intermediate bias, the Ally Principal fails for small changes in bias, the Uncertainty Principle may fail, and the principal prefers to appoint an amateur agent.

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Bibliographic Info

Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2009-20.

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Date of creation: Nov 2009
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Handle: RePEc:not:notcdx:2009-20

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Web page: http://www.nottingham.ac.uk/economics/cedex/
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Related research

Keywords: Optimal delegation; finite states; Ally Principle; Uncertainty Principle; expertise;

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References

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  1. Vincent Anesi & Daniel J. Seidmann, 2009. "Optimal Delegation with a Finite Number of States," Discussion Papers 2009-20, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  2. Georgy Egorov & Konstantin Sonin, 2011. "Dictators And Their Viziers: Endogenizing The Loyalty–Competence Trade‐Off," Journal of the European Economic Association, European Economic Association, vol. 9(5), pages 903-930, October.
  3. Craig Volden, 2002. "Delegating Power to Bureaucracies: Evidence from the States," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 187-220, April.
  4. Kovác, Eugen & Mylovanov, Tymofiy, 2009. "Stochastic mechanisms in settings without monetary transfers: The regular case," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1373-1395, July.
  5. Sanford C. Gordon, 2007. "Directing Retribution: On the Political Control of Lower Court Judges," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(2), pages 386-420, June.
  6. Krishna, Vijay & Morgan, John, 2004. "Contracting for Information under Imperfect Commitment," Competition Policy Center, Working Paper Series qt4010c6w9, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  7. Manuel Amador & George-Marios Angeletos & Ivan Werning, 2004. "Commitment vs. Flexibility," 2004 Meeting Papers 87, Society for Economic Dynamics.
  8. Koessler, Frédéric & Martimort, David, 2012. "Optimal delegation with multi-dimensional decisions," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1850-1881.
  9. Ivanov, Maxim, 2010. "Informational control and organizational design," Journal of Economic Theory, Elsevier, vol. 145(2), pages 721-751, March.
  10. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  11. 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.
  12. Goltsman, Maria & Hörner, Johannes & Pavlov, Gregory & Squintani, Francesco, 2009. "Mediation, arbitration and negotiation," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1397-1420, July.
  13. Callander, Steven, 2008. "A Theory of Policy Expertise," International Quarterly Journal of Political Science, now publishers, vol. 3(2), pages 123-140, July.
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Cited by:
  1. Vincent Anesi & Daniel J. Seidmann, 2009. "Optimal Delegation with a Finite Number of States," Discussion Papers 2009-20, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

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