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The Allocation of Decision-Making Authority when Principal has Reputation Concerns

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  • Tamada, Yasunari
  • Tsai, Tsung-Sheng

Abstract

This paper analyzes the allocation of decision-making authority when the principal has reputation concerns. The principal can either keep the authority, or delegate it to the agent, who has better information. An outside evaluator who forms the principal's reputation cannot observe who makes the decision. The key feature of this paper is that the principal can in°uence her reputation through her delegation policy. With reputation concerns, we show that the principal tends to keep too much the authority from the evaluator's point of view, even though sometimes her information is not good enough for her to make the decision on her own.

Suggested Citation

  • Tamada, Yasunari & Tsai, Tsung-Sheng, 2009. "The Allocation of Decision-Making Authority when Principal has Reputation Concerns," MPRA Paper 20225, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:20225
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    References listed on IDEAS

    as
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    5. Marco Ottaviani & Peter Norman Sørensen, 2006. "Reputational cheap talk," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 155-175, March.
    6. Milton Harris & Artur Raviv, 2005. "Allocation of Decision-making Authority," Review of Finance, European Finance Association, vol. 9(3), pages 353-383.
    7. Wouter Dessein, 2002. "Authority and Communication in Organizations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 811-838.
    8. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Decision-making authority; delegation; reputation concerns;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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