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Optimal Delegation

Author

Listed:
  • Alonso, Ricardo
  • Matouschek, Niko

Abstract

We analyse the optimal delegation of decision rights by a uninformed principal to an informed but biased agent. When the principal cannot use message-contingent transfers, she offers the agent a set of decisions from which he can choose his preferred one. We fully characterize the optimal delegation set for general distributions of the state space and preferences with arbitrary continuous state-dependent biases. We also provide necessary and sufficient conditions for particular delegation sets to be optimal. Finally, we show that the optimal delegation set takes the form of a single interval if the agent's preferences are sufficiently similar to the principal's.

Suggested Citation

  • Alonso, Ricardo & Matouschek, Niko, 2005. "Optimal Delegation," CEPR Discussion Papers 5289, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5289
    as

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    References listed on IDEAS

    as
    1. Ricardo Alonso & Niko Matouschek, 2007. "Relational delegation," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1070-1089, December.
    2. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    3. Harris, Milton & Raviv, Artur, 1998. "Capital budgeting and delegation," Journal of Financial Economics, Elsevier, vol. 50(3), pages 259-289, December.
    4. Strausz, Roland, 2003. "Deterministic mechanisms and the revelation principle," Economics Letters, Elsevier, vol. 79(3), pages 333-337, June.
    5. Dezsö Szalay, 2005. "The Economics of Clear Advice and Extreme Options," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 1173-1198.
    6. Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer.
    7. Michael C. Jensen & William H. Heckling, 1995. "Specific And General Knowledge, And Organizational Structure," Journal of Applied Corporate Finance, Morgan Stanley, vol. 8(2), pages 4-18.
    8. repec:cup:apsrev:v:95:y:2001:i:02:p:435-452_00 is not listed on IDEAS
    9. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    10. Harris, Milton & Raviv, Artur, 1996. " The Capital Budgeting Process: Incentives and Information," Journal of Finance, American Finance Association, vol. 51(4), pages 1139-1174, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    decision rights; delegation; mechanism design;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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