We explore the optimal delegation of decision rights by a principal to a better informed but biased agent. In an infinitely repeated game a long lived principal faces a series of short lived agents. Every period they play a cheap talk game ala Crawford and Sobel (1982) with constant bias, quadratic loss functions and general distributions of the state of the world. We characterize the optimal delegation schemes for all discount rates and show that they resemble organizational arrangements that are commonly observed, including centralization and threshold delegation. For small biases threshold delegation is optimal for almost all distributions. Outsourcing can only be optimal if the principal is sufficiently impatient.
|Date of creation:||Jan 2005|
|Date of revision:|
|Publication status:||published in: RAND Journal of Economics, 2007, 38 (4), 1070 - 1089|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:oup:qjecon:v:109:y:1994:i:4:p:1125-56 is not listed on IDEAS
- Krishna, Vijay & Morgan, John, 2004.
"Contracting for Information under Imperfect Commitment,"
Competition Policy Center, Working Paper Series
qt4010c6w9, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Vijay Krishna & John Morgan, 2008. "Contracting for information under imperfect commitment," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 905-925.
- Vijay Krishna & John Morgan, 2005. "Contracting for Information under Imperfect Commitment," Microeconomics 0504006, EconWPA.
- 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.
- repec:oup:qjecon:v:117:y:2002:i:1:p:39-84 is not listed on IDEAS
- repec:oup:restud:v:69:y:2002:i:4:p:811-38 is not listed on IDEAS
- Harris, Milton & Raviv, Artur, 1996. " The Capital Budgeting Process: Incentives and Information," Journal of Finance, American Finance Association, vol. 51(4), pages 1139-74, September.
- Jonathan Levin, 2000.
"Relational Incentive Contracts,"
01002, Stanford University, Department of Economics.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- Crawford, Vincent P & Sobel, Joel, 1982.
"Strategic Information Transmission,"
Econometric Society, vol. 50(6), pages 1431-51, November.
- Ricardo Alonso & Niko Matouschek, 2008.
Review of Economic Studies,
Oxford University Press, vol. 75(1), pages 259-293.
- Anthony M. Marino & John G. Matsusaka, 2005. "Decision Processes, Agency Problems, and Information: An Economic Analysis of Capital Budgeting Procedures," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 301-325.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp1454. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.