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Delegation and Opportunism

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  • Kouroche Vafaï

Abstract

We analyze the effect of opportunism on organizational structure. In our moral-hazard environment, a principal chooses between a principal-agent organization where the principal itself monitors the output produced by the agent, and a principal-supervisor~agent hierarchy where monitoring is delegated. We find that as long as only one form of opportunism may take place in a principal-supervisor~agent hierarchy, this structure dominates a principal-agent organization. We then show that when multiple forms of opportunism may occur in a principal-supervisor~agent hierarchy, this structure may strictly be dominated by a principal-agent organization.

Suggested Citation

  • Kouroche Vafaï, 2004. "Delegation and Opportunism," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(3), pages 498-521, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200409)160:3_498:dao_2.0.tx_2-s
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    References listed on IDEAS

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    1. Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
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    5. Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
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    Cited by:

    1. Giebe, Thomas & Gürtler, Oliver, 2012. "Optimal contracts for lenient supervisors," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 403-420.

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    More about this item

    JEL classification:

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

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