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Delegation and Value Creation

Author

Listed:
  • Gerald Eisenkopf

    () (Department of Economics, University of Konstanz, Germany)

  • Stephan Nüesch

    () (Business Economics - Corporate Governance - Personnel Economics, University of Zurich, Switzerland)

Abstract

Many scholars argue that the delegation of decision rights to independent institutions promotes trust and specific investments. We test this conjecture with variations of the trust game in which the back transfer decision is delegated to a third party. A randomly chosen third party with a fixed payment induces larger investments over time although the experimental design rules out reputation building. Changes in the third party’s selection procedure eliminate this benefit. If the third party gets a reward for the appointment, delegation actually destroys trust. Investors (unwarrantedly) fear a diffusion of responsibility and lower back transfers in this case.

Suggested Citation

  • Gerald Eisenkopf & Stephan Nüesch, 2013. "Delegation and Value Creation," Working Paper Series of the Department of Economics, University of Konstanz 2013-13, Department of Economics, University of Konstanz.
  • Handle: RePEc:knz:dpteco:1313
    as

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    File URL: http://www.uni-konstanz.de/FuF/wiwi/workingpaperseries/WP_13-Eisenkopf-Nueesch_2013.pdf
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    References listed on IDEAS

    as
    1. Sanchez-Pages, Santiago & Vorsatz, Marc, 2007. "An experimental study of truth-telling in a sender-receiver game," Games and Economic Behavior, Elsevier, vol. 61(1), pages 86-112, October.
    2. Iris Bohnet & Steffen Huck, 2004. "Repetition and Reputation: Implications for Trust and Trustworthiness When Institutions Change," American Economic Review, American Economic Association, vol. 94(2), pages 362-366, May.
    3. Muller, Laurent & Sefton, Martin & Steinberg, Richard & Vesterlund, Lise, 2008. "Strategic behavior and learning in repeated voluntary contribution experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 782-793, September.
    4. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    5. Lucas C. Coffman, 2011. "Intermediation Reduces Punishment (and Reward)," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 77-106, November.
    6. Santiago Sánchez-Pagés & Marc Vorsatz, 2009. "Enjoy the silence: an experiment on truth-telling," Experimental Economics, Springer;Economic Science Association, vol. 12(2), pages 220-241, June.
    7. Björn Bartling & Urs Fischbacher, 2012. "Shifting the Blame: On Delegation and Responsibility," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 67-87.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Delegation; Trust; Third Party; Appointment procedures; Remuneration;

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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