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Transfer of authority within hierarchies

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  • Pinghan Liang

    (Sun Yat-sen University)

Abstract

This paper studies delegation and communication in a model of three-tier hierarchy. There is an uninformed principal, and uninformed intermediary, and an informed agent. Under delegation the principal chooses an interval of actions to delegate to the intermediary, and the intermediary chooses a sub-interval from that interval to delegate to the agent. Under communication, the agent communicates with the intermediary, after which the intermediary communicates with the principal. We characterize the equilibrium outcomes under delegation and communication. We show that under delegation the principal can appoint a more biased individual to be the intermediary, and a less biased individual to be the agent. Furthermore, we demonstrate that the principal can prefer to communicate with the subordinates rather than delegate decision rights to them if the intermediary and the agent have opposing biased.

Suggested Citation

  • Pinghan Liang, 2017. "Transfer of authority within hierarchies," Review of Economic Design, Springer;Society for Economic Design, vol. 21(4), pages 273-290, December.
    • Handle: RePEc:spr:reecde:v:21:y:2017:i:4:d:10.1007_s10058-017-0206-8
    DOI: 10.1007/s10058-017-0206-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Delegation; Hierarchies; Communication;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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