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Delegation and incentives

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  • Bester, Helmut
  • Krähmer, Daniel

Abstract

This paper analyses the relation between authority and incentives. It extends the standard principal / agent model by a project selection stage in which the principal can either delegate the choice of project to the agent or keep the authority. The agent's subsequent choice of e ort depends both on monetary incentives and the selected project. We nd that the consideration of e ort incentives makes the principal less likely to delegate the authority over projects to the agent. In fact, if the agent is protected by limited liability, delegation is never optimal.

Suggested Citation

  • Bester, Helmut & Krähmer, Daniel, 2006. "Delegation and incentives," Discussion Papers 2007/1, Free University Berlin, School of Business & Economics.
    • Handle: RePEc:zbw:fubsbe:20071
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    References listed on IDEAS

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    More about this item

    Keywords

    Authority; delegation; incentives; moral hazard; principal / agent problem; limited liability;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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