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Optimal delegation via a strategic intermediary

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  • Liang, Pinghan

Abstract

This paper studies the optimal design of delegation rule in a three-tier principal-intermediary-agent hierarchy. In this hierarchy, monetary transfer is not feasible, delegation is made sequentially, and all players are strategic. We characterize the optimal delegation mechanism. It is shown that the single-interval delegation a la Holmstrom is optimal only when the intermediary is moderately biased. Otherwise, as responses to the distortion caused by a biased intermediary, the optimal delegation set may involve a hole. Thus, multi-interval delegation set would arise when subordinates have opposing biases. This result sheds some light on policy threshold effects: "slight" changes in the underlying state cause a jump in the policy responses.

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  • Liang, Pinghan, 2013. "Optimal delegation via a strategic intermediary," MPRA Paper 45271, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:45271
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    Cited by:

    1. Krähmer, Daniel & Kováč, Eugen, 2016. "Optimal sequential delegation," Journal of Economic Theory, Elsevier, vol. 163(C), pages 849-888.
    2. Pinghan Liang, 2017. "Transfer of authority within hierarchies," Review of Economic Design, Springer;Society for Economic Design, vol. 21(4), pages 273-290, December.
    3. Benita, Francisco & Nasini, Stefano & Nessah, Rabia, 2022. "A cooperative bargaining framework for decentralized portfolio optimization," Journal of Mathematical Economics, Elsevier, vol. 103(C).

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    More about this item

    Keywords

    Delegation; Intermediary; Hierarchies;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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