IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpmi/0504006.html
   My bibliography  Save this paper

Contracting for Information under Imperfect Commitment

Author

Listed:
  • Vijay Krishna

    (Department of Economics, Penn State University)

  • John Morgan

    (Haas School of Business & Department of Economics, University of California, Berkeley)

Abstract

Organizational theory suggests that authority should lie in the hands of those with information, yet the power to transfer authority is rarely absolute in practice. We investigate the validity and application of this advice in a model of optimal contracting between an uninformed principal and informed agent where the principal's commitment power is imperfect. We show that while full alignment of interests combined with delegation of authority is feasible, it is never optimal. The optimal contract is 'bang-bang'---in one region of the state space, full alignment takes place, in the other, no alignment takes place. We then compare these contracts to those in which the principal has full commitment power as well as to several 'informal' institutional arrangements.

Suggested Citation

  • Vijay Krishna & John Morgan, 2005. "Contracting for Information under Imperfect Commitment," Microeconomics 0504006, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpmi:0504006
    Note: Type of Document - pdf; pages: 38
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mic/papers/0504/0504006.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    2. Ricardo Alonso & Niko Matouschek, 2008. "Optimal Delegation," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 259-293.
    3. Alonso, Ricardo & Matouschek, Niko, 2008. "Optimal delegation," LSE Research Online Documents on Economics 58665, London School of Economics and Political Science, LSE Library.
    4. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
    5. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    6. Gilligan, Thomas W & Krehbiel, Keith, 1987. "Collective Decisionmaking and Standing Committees: An Informational Rationale for Restrictive Amendment Procedures," Journal of Law, Economics, and Organization, Oxford University Press, vol. 3(2), pages 287-335, Fall.
    7. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-1098, July.
    8. repec:cup:apsrev:v:95:y:2001:i:02:p:435-452_00 is not listed on IDEAS
    9. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    10. Prendergast, Canice, 1993. "A Theory of "Yes Men."," American Economic Review, American Economic Association, vol. 83(4), pages 757-770, September.
    11. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Imperfect commitment; optimal contracting; delegation;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpmi:0504006. 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: (EconWPA). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.