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Optimal Delegation


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  • Szalay, Dezsö

    (Sonderforschungsbereich 504)


How should a principal delegate a task to an agent? This paper studies the principal's choice of an agent's freedom of action as an incentive problem. The optimal contract simultaneously copes with two problems of asymmetric information: the agent must be motivated to acquire productive information and he must be given incentives to use the information in the principal's interest. In order to provide the agent with proper incentives for information acquisition the principal may optimally choose to curtail the agent's authority over decision making even if there are no conflicts with respect to the decision itself. As a result the relationship between the severity of the conflict of principal's and agent's interests and the agent's optimal freedom of action is non-monotonic. Our theory provides a rationale for commonly observed phenomena such as 'demanding clear statements' from advisors or 'imposing an innovation bias' on an organizational structure.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 00-29.

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Length: 44 pages
Date of creation: 14 Jun 2000
Date of revision:
Handle: RePEc:xrs:sfbmaa:00-29

Note: Special thanks are due to Martin Hellwig for ongoing discussions and advice. I would also like to thank Jacques Crémer, Sascha Haller, Nobuhiro Kiyotaki, Christian Laux, Nicolas Melissas, Benny Moldovanu and John Moore as well as the participants of the Mannheim workshop in economic theory for very useful discussions and comments. Financial support of the Swiss Science National Foundation is greatfully acknowledged. All remaining errors are my own.
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  1. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
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Cited by:
  1. Andreas Roider, 2003. "Delegation of Authority as an Optimal (In)complete Contract," Bonn Econ Discussion Papers bgse8_2003, University of Bonn, Germany, revised Aug 2004.
  2. Krähmer, Daniel, 2002. "Delegation versus authority," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-26, Social Science Research Center Berlin (WZB).


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