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A Model of Delegated Project Choice With Application to Merger Policy

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  • John Vickers
  • Mark Armstrong

Abstract

We present a model in which a principal delegates the choice of project to an agent with different preferences. A project`s characteristics are verifiable once presented to the principal, but the principal does not know how many projects are available to the agent. The principal chooses the set of projects which the agent can implement. Three frameworks are considered: (i) a static setting in which the set of available projects is exogenous to the agent but uncertain; (ii) a dynamic setting in which by expending effort the agent can affect the number of projects, and (iii) a dynamic setting in which the agent must wait for projects to materialize. The model is applied to the choice of welfare standard for merger policy.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 347.

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Date of creation: 01 Sep 2007
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Handle: RePEc:oxf:wpaper:347

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Keywords: Delegation; Principal-Agent; Search; Merger Policy;

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References

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  1. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 37, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Alonso, Ricardo & Matouschek, Niko, 2005. "Optimal Delegation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5289, C.E.P.R. Discussion Papers.
  3. Joseph Farrell & Michael Katz, 2006. "The Economics of Welfare Standards in Antitrust," CPI Journal, Competition Policy International, Competition Policy International, vol. 2.
  4. Fridolfsson, Sven-Olof, 2007. "A Consumer Surplus Defense in Merger Control," Working Paper Series, Research Institute of Industrial Economics 686, Research Institute of Industrial Economics.
  5. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1999. "Informal Authority in Organizations," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 15(1), pages 56-73, April.
  6. Armstrong, M., 1994. "Delegation and discretion," Discussion Paper Series In Economics And Econometrics 9421, Economics Division, School of Social Sciences, University of Southampton.
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Cited by:
  1. Eric Weese, 2008. "Political Mergers as Coalition Formation: Evidence from Japanese Municipal Amalgamations," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd08-017, Institute of Economic Research, Hitotsubashi University.
  2. Weese, Eric, 2008. "Political Mergers as Coalition Formation : Evidence from Japanese Municipal Amalgamations," CCES Discussion Paper Series, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University 5, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.

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