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Transferable Control

  • Rey, Patrick
  • Dewatripont, Mathias
  • Aghion, Philippe

In this paper, we introduce the notion of transferable control, defined as a situation where one party (the principal, say) can transfer control to another party (the agent) but cannot commit herself to do so. One theoretical foundation for this notion builds on the distinction between formal and real authority introduced by Aghion and Tirole, in which the actual exercise of authority may require noncontractible information, absent which formal control rights are vacuous. We use this notion to study the extent to which control transfers may allow an agent to reveal information regarding his ability or willingness to cooperate with the principal in the future. We show that the distinction between contractible and transferable control can drastically influence how learning takes place: with contractible control, information about the agent can often be acquired through revelation mechanisms that involve communication and message-contingent control allocations; in contrast, when control is transferable but not contractible, it can be optimal to transfer control unconditionally and learn instead from the way in which the agent exercises control.

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File URL: http://dash.harvard.edu/bitstream/handle/1/4481511/aghion_transferablecontrol.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4481511.

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Date of creation: 2004
Date of revision:
Publication status: Published in Journal of the European Economic Association
Handle: RePEc:hrv:faseco:4481511
Contact details of provider: Postal: Littauer Center, Cambridge, MA 02138
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Web page: http://www.economics.harvard.edu/

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  1. Oliver Hart & John Moore, 2005. "On the Design of Hierarchies: Coordination versus Specialization," ESE Discussion Papers 117, Edinburgh School of Economics, University of Edinburgh.
  2. Dessein, Wouter, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 811-38, October.
  3. Patrick Legros & Andrew F. Newman, 2004. "Competing for Ownership," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-148, Boston University - Department of Economics.
  4. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
  5. Rey, Patrick & Dewatripont, Mathias & Aghion, Philippe, 2004. "Transferable Control," Scholarly Articles 4481511, Harvard University Department of Economics.
  6. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  7. Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
  8. Mathias Dewatripont, 2006. "Transferable control," ULB Institutional Repository 2013/9649, ULB -- Universite Libre de Bruxelles.
  9. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 2002. "On partial contracting," ULB Institutional Repository 2013/9627, ULB -- Universite Libre de Bruxelles.
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