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Delegation, Risk, and Project Scope

  • Andreas Roider

This paper studies a partial-contracting model where an agent may provide effort to increase a project´s scope before some later (operative) decisions have to be taken. Consistent with existing empirical evidence, we find a positive relationship between exogenous risk and delegation. That is, only if the exogenous risk is sufficiently large may the risk-neutral principal prefer to delegate authority over decisions to the risk-averse agent. Intuitively, for incentive reasons, the principal may optimally want to allow the agent to reduce his risk exposure. Nevertheless, even endogenous risk may be higher when the risk-averse agent has control.

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

Volume (Year): 165 (2009)
Issue (Month): 2 (June)
Pages: 193-209

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200906)165:2_193:draps_2.0.tx_2-o
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  1. Guo, Ming & Ou-Yang, Hui, 2006. "Incentives and performance in the presence of wealth effects and endogenous risk," Journal of Economic Theory, Elsevier, vol. 129(1), pages 150-191, July.
  2. Patrick W. Schmitz, 2005. "Allocating control in agency problems with limited liability and sequential hidden actions," Bonn Econ Discussion Papers bgse27_2005, University of Bonn, Germany.
  3. Poitevin, M., 2000. "Can the Theory of Incentives Explain Devcentralization?," Cahiers de recherche 2000-13, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. repec:cup:cbooks:9780521645348 is not listed on IDEAS
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