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Decision rules and information provision: monitoring versus manipulation

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  • Palumbo, Giuliana
  • Iossa, Elisabetta

Abstract

The paper focuses on the organization of institutions designed to resolve disputes between two parties, when some information is not veriable and decision makers may have vested preferences. It shows that the choice of how much discretional power to grant to the decision maker and who provides the information are intrinsically related. Direct involvement of the interested parties in the supply of information enhances monitoring over the decision maker, although at the cost of higher manipulation. Thus, it is desirable when the decision maker is granted high discretion. On the contrary, when the decision maker has limited discretional power, information provision is better assigned to an agent with no direct stake. The analysis helps to rationalize some organizational arrangements that are commonly observed in the context of judicial and antitrust decision-making.

Suggested Citation

  • Palumbo, Giuliana & Iossa, Elisabetta, 2002. "Decision rules and information provision: monitoring versus manipulation," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 452, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  • Handle: RePEc:fgv:epgewp:452
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    References listed on IDEAS

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    1. Bengt Holmstrom, 1980. "On The Theory of Delegation," Discussion Papers 438, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    3. Jean-Jacques Laffont & Jean Tirole, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1089-1127.
    4. Armstrong, M., 1994. "Delegation and discretion," Discussion Paper Series In Economics And Econometrics 9421, Economics Division, School of Social Sciences, University of Southampton.
    5. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    6. Palumbo, Giuliana, 2006. "Optimal duplication of effort in advocacy systems," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 112-128, May.
    7. Laffont, Jean-Jacques & Tirole, Jean, 1990. "The Politics of Government Decision Making: Regulatory Institutions," Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(1), pages 1-31, Spring.
    8. Cowen, Tyler & Glazer, Amihai & Zajc, Katarina, 2000. "Credibility may require discretion, not rules," Journal of Public Economics, Elsevier, vol. 76(2), pages 295-306, May.
    9. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Cited by:

    1. Anderlini Luca & Felli Leonardo & Postlewaite Andrew, 2011. "Should Courts Always Enforce What Contracting Parties Write?," Review of Law & Economics, De Gruyter, vol. 7(1), pages 14-28, February.
    2. Bruno Deffains & Dominique Demougin, 2008. "The Inquisitorial and the Adversarial Procedure in a Criminal Court Setting," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 31-43, March.

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