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Delegated versus Nondelegated Decision Making

Author

Listed:
  • Rosa Loveira

    (Universidade de Vigo)

Abstract

This paper analyzes the value of menus of contracts in a context of delegated expertise with nondelegated decision making. Firms delegate to managers the task of obtaining information about strategic decisions, and they choose whether or not to delegate the actual decision-making process to these managers. A delegated decision-making process involves offering the expert a contract that stipulates different payoffs contingent on verifiable results, whereas a nondelegated decision-making process involves a menu of contracts from which the expert can choose. We find that menus of contracts are valuable because they induce efficient decision making at lower cost.

Suggested Citation

  • Rosa Loveira, 2012. "Delegated versus Nondelegated Decision Making," Economics Bulletin, AccessEcon, vol. 32(4), pages 2716-2726.
    • Handle: RePEc:ebl:ecbull:eb-12-00550
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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I4-P262.pdf
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    More about this item

    Keywords

    Delegated Expertise; Incentive Contracts;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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