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Efficient Delegation by an Informed Principal

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  • Eric W. Bond
  • Thomas A. Gresik

Abstract

Motivated by examples from the automobile industry, insurance, retailing, and multinational strategy, we study an organizational structure we refer to as "partial delegation." In a bargaining problem between an informed party and an uninformed party, partial delegation involves the informed party delegating bargaining to an agent while retaining control of its private information. We show that partial delegation enables the informed party to earn information rents without creating quantity distortions. First‐best quantities are traded in equilibrium. We argue that partial delegation allows an informed party to implement efficient trade with outside parties by endogenously improving its bargaining power.

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  • Eric W. Bond & Thomas A. Gresik, 2011. "Efficient Delegation by an Informed Principal," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(3), pages 887-924, September.
    • Handle: RePEc:bla:jemstr:v:20:y:2011:i:3:p:887-924
    DOI: 10.1111/j.1530-9134.2011.00303.x
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    Cited by:

    1. Aristotelis Boukouras, 2015. "Separation of Ownership and Control: Delegation as a Commitment Device," Discussion Papers in Economics 15/02, Division of Economics, School of Business, University of Leicester.
    2. Shin, Dongsoo, 2015. "Incentives and management styles," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 22-31.
    3. Thomas A. Gresik & Guttorm Schjelderup, 2024. "Transfer pricing under global adoption of destination-based cash-flow taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(1), pages 243-261, February.
    4. Gick, Wolfgang, 2015. "A Theory of Delegated Contracting," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113069, Verein für Socialpolitik / German Economic Association.

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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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