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Repeated Delegation

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  • Elliot Lipnowski
  • Joao Ramos

Abstract

In an ongoing relationship of delegated decision making, a principal consults a biased agent to assess projects' returns. In equilibrium, the principal allows future bad projects to reward fiscal restraint, but cannot commit to indefinite rewards. We characterize equilibrium payoffs (at fixed discounting), showing that Pareto optimal equilibria are implemented via a two-regime ‘Dynamic Capital Budget’. Rather than facing backloaded rewards—as in dynamic agency models with commitment power—the agent loses autonomy as time progresses.
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Suggested Citation

  • Elliot Lipnowski & Joao Ramos, 2015. "Repeated Delegation," Working Papers 15-02, New York University, Leonard N. Stern School of Business, Department of Economics.
  • Handle: RePEc:ste:nystbu:15-02
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    References listed on IDEAS

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    Cited by:

    1. Daniel Bird & Alexander Frug, 2019. "Dynamic Non-monetary Incentives," American Economic Journal: Microeconomics, American Economic Association, vol. 11(4), pages 111-150, November.
    2. Daniel Bird & Alexander Frug, 2020. "Optimal contracts with randomly arriving tasks," Economics Working Papers 1690, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Ying Chen & Hulya Eraslan, 2018. "Learning While Setting Precedents," Koç University-TUSIAD Economic Research Forum Working Papers 1810, Koc University-TUSIAD Economic Research Forum.
    4. Anton Kolotilin & Hongyi, 2018. "Relational Communication," Discussion Papers 2018-12, School of Economics, The University of New South Wales.
    5. Guo, Yingni & Hörner, Johannes, 2020. "Dynamic Allocation without Money," TSE Working Papers 20-1133, Toulouse School of Economics (TSE).
    6. Yingni Guo & Johannes Hörner, 2021. "Dynamic Allocation without Money," Working Papers hal-03187506, HAL.
    7. Matthew Mitchell, 2018. "Free (Ad)vice," 2018 Meeting Papers 1194, Society for Economic Dynamics.
    8. Daniel Bird & Alexander Frug, 2020. "Optimal Contracts with Randomly Arriving Tasks," Working Papers 1147, Barcelona Graduate School of Economics.
    9. Marina Halac & Pierre Yared, 2017. "Fiscal Rules and Discretion under Self-Enforcement," NBER Working Papers 23919, National Bureau of Economic Research, Inc.
    10. Rohit Lamba & Ilia Krasikov, 2017. "A Theory of Dynamic Contracting with Financial Constraints," 2017 Meeting Papers 1544, Society for Economic Dynamics.
    11. Kishishita, Daiki, 2020. "(Not) delegating decisions to experts: The effect of uncertainty," Journal of Economic Theory, Elsevier, vol. 190(C).
    12. Meng, Delong, 2021. "On the value of repetition for communication games," Games and Economic Behavior, Elsevier, vol. 127(C), pages 227-246.

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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