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On Delegation under Relational Contracts

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  • Gürtler, Oliver

Abstract

In this paper, a principal’s decision between delegating two tasks or handling one of the two tasks herself is analyzed. We assume that the principal uses both, formal contracts and informal agreements sustained by the value of future relationships (relational contracts) as incentive device. It is found that the principal is less likely to delegate both tasks in a dynamic setting than in a static one (where formal contracts are the only feasible incentive device), as handling one task herself enables a much wider use of relational contracts.

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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 113.

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Date of creation: May 2006
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Handle: RePEc:trf:wpaper:113

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Keywords: Job design; relational contracts; formal contracts; delegation;

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  1. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers 01002, Stanford University, Department of Economics.
  2. Luis Rayo, 2002. "Relational Team Incentives and Ownership," Theory workshop papers 357966000000000087, UCLA Department of Economics.
  3. Itoh, H., 1996. "Job Design and Incentives in Hierarchies with Team Production," ISER Discussion Paper 0403, Institute of Social and Economic Research, Osaka University.
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  5. Monika Schnitzer, 1994. "The Interaction of Explicit and Implicit Contracts," Discussion Paper Serie A 452, University of Bonn, Germany.
  6. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
  7. Hideshi Itoh & Hodaka Morita, 2006. "Formal Contracts, Relational Contracts, and the Holdup Problem," CESifo Working Paper Series 1786, CESifo Group Munich.
  8. Itoh, Hideshi, 1994. "Job design, delegation and cooperation: A principal-agent analysis," European Economic Review, Elsevier, vol. 38(3-4), pages 691-700, April.
  9. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  10. Garvey, Gerald T., 1995. "Why reputation favors joint ventures over vertical and horizontal integration A simple model," Journal of Economic Behavior & Organization, Elsevier, vol. 28(3), pages 387-397, December.
  11. Dye, Ronald A, 1984. "The Trouble with Tournaments," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 147-49, January.
  12. Konrad, Kai A, 2000. "Sabotage in Rent-Seeking Contests," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(1), pages 155-65, April.
  13. Kong-Pin Chen, 2003. "Sabotage in Promotion Tournaments," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 119-140, April.
  14. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
  15. Pearce, David G. & Stacchetti, Ennio, 1998. "The Interaction of Implicit and Explicit Contracts in Repeated Agency," Games and Economic Behavior, Elsevier, vol. 23(1), pages 75-96, April.
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