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Delegated Information Acquisition and Capital Budgeting: On the Separation of Project Evaluation and Project Management

  • Christian Laux

The paper analyzes the question who should be provided with incentives to acquire and reveal information about the quality of an investment proposal: the division manager, who derives private benefits of control from the project and always wants to invest, or the capital budgeting department, which has no personal interests in the decision. Interestingly, private benefits of control may reduce expected wage costs. In this case joint project evaluation and project management is optimal.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 157 (2001)
Issue (Month): 4 (December)
Pages: 591-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200112)157:4_591:diaacb_2.0.tx_2-8
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  1. Ewerhart, Christian & Schmitz, Patrick W., 2000. ""Yes Men," Integrity, and the Optimal Design of Incentive Contracts," MPRA Paper 12534, University Library of Munich, Germany.
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