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Allocation of Decision-Making Authority with Principal's Reputation Concerns

Author

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  • Tsung-Sheng Tsai
  • Yasunari Tamada

Abstract

This paper analyzes the allocation of decision-making authority when the principal has reputation concerns. The principal can either keep the authority and consult the agent (an expert), or delegate the authority to the agent; however, the outside evaluator cannot observe the allocation of authority. Hence, delegation can provide a way to manipulate the principal's ex post reputation. In general, the principal keeps the authority too often when she has the opportunity of delegation. When the evaluator believes that the agent may make the decision sometimes, the principal has less incentive to make the right decisions

Suggested Citation

  • Tsung-Sheng Tsai & Yasunari Tamada, 2004. "Allocation of Decision-Making Authority with Principal's Reputation Concerns," Econometric Society 2004 Far Eastern Meetings 701, Econometric Society.
  • Handle: RePEc:ecm:feam04:701
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    File URL: http://repec.org/esFEAM04/up.19931.1080716758.pdf
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    References listed on IDEAS

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    1. 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.
    2. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
    3. Fredrik Andersson, 2002. "Career Concerns, Contracts, and Effort Distortions," Journal of Labor Economics, University of Chicago Press, vol. 20(1), pages 42-58, January.
    4. Stephen Morris, 2001. "Political Correctness," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 231-265, April.
    5. Milton Harris & Artur Raviv, 2005. "Allocation of Decision-making Authority," Review of Finance, Springer, vol. 9(3), pages 353-383, September.
    6. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    7. Ottaviani, Marco & Sorensen, Peter Norman, 2006. "Professional advice," Journal of Economic Theory, Elsevier, vol. 126(1), pages 120-142, January.
    8. Sean Gailmard, 2002. "Expertise, Subversion, and Bureaucratic Discretion," Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 536-555, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Delegation; Principal's Reputation Concerns; Cheap Talk;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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