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Delegation in Long-Term Relationships

  • Miriam Schütte
  • Philipp C. Wichardt

This paper considers the e effcts of a two-period interaction on the decision of a principal to delegate authority to a potentially biased but better informed agent. Compared to the (repeated) one-period case, the agent's first period actions may also signal his type which in turn impacts wages in Period 2. As a result, biased agents have an incentive not to follow their own preferences in Period 1, thereby inducing the principal to delegate more often. Moreover, we find that, depending on the players' relative utilities and the wage schedule, long term relationships will increase aggregate welfare. Finally, to empirically support our findings, we analyse data from the German Socio-Economic Panel (SOEP) which show that temporary workers indeed experience less autonomy in their decisions.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.408062.de/diw_sp0480.pdf
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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 480.

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Length: 36 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp480
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  1. Alonso, Ricardo & Dessein, Wouter & Matouschek, Niko, 2006. "When Does Coordination Require Centralization?," CEPR Discussion Papers 5802, C.E.P.R. Discussion Papers.
  2. Benabou, R. & Laroque, G., 1988. "Using Privileged Information To Manipulate Markets: Insiders, Gurus And Credibility," Papers 19, Princeton, Woodrow Wilson School - Discussion Paper.
  3. Joel Sobel, 1985. "A Theory of Credibility," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 557-573.
  4. Marco Ottaviani & Peter Sorensen, 1999. "Professional Advice," Game Theory and Information 9906003, EconWPA.
  5. Prat, Andrea, 2003. "The Wrong Kind of Transparency," CEPR Discussion Papers 3859, C.E.P.R. Discussion Papers.
  6. Englmaier, Florian & Filipi, Ales & Singh, Ravi, 2010. "Incentives, reputation and the allocation of authority," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 413-427, November.
  7. Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
  8. Mathias Dewatripont, 2006. "Transferable control," ULB Institutional Repository 2013/9649, ULB -- Universite Libre de Bruxelles.
  9. Stephen Morris, 2001. "Political Correctness," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 231-265, April.
  10. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
  11. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization? Corrigendum," American Economic Review, American Economic Association, vol. 98(3), pages 1195-96, June.
  12. Ricardo Alonso & Niko Matouschek, 2007. "Relational delegation," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1070-1089, December.
  13. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  14. Ricardo Alonso & Niko Matouschek, 2008. "Optimal Delegation," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 259-293.
  15. repec:hrv:faseco:4481511 is not listed on IDEAS
  16. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
  17. Marco Ottaviani & Peter Norman Sørensen, 2006. "Reputational cheap talk," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 155-175, 03.
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