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Delegating Budgets when Agents Care About Autonomy

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Author Info
Michael Kuhn

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Abstract

We consider resource allocation within an organisation when agents have a preference for autonomy and show how delegation bears on moral hazard and adverse selection. Agents may care about autonomy for reasons of job-satisfaction, status or greater reputation of perform-ance under autonomy. Separating allocations (overall budget and degree of delegation) are characterised depending on the preference for autonomy. As the latter is increasing, the de-gree of delegation assigned to productive and unproductive agents becomes more similar and may even be reversed when financial transfers are used. If agents’ preference for monetary rewards is sufficiently weak, the principal will not employ financial transfers and pooling arises if the preference for autonomy is strong.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 04/10.

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Handle: RePEc:yor:yorken:04/10

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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
Phone: (0)1904 433776
Fax: (0)1904 433759
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Web page: http://www.york.ac.uk/depts/econ/
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Related research
Keywords: adverse selection; capital budgeting; delegation; moral hazard; non-responsiveness; resource allocation;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy

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