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Optimal delegation choices in the presence of an incongruent performance measure and double moral hazard

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  • Barbara Schöndube‐Pirchegger
  • Jens Robert Schöndube

Abstract

An owner‐manager can delegate two tasks to an agent. A time constraint prevents him from completing both tasks at first‐best levels. He can (a) perform both tasks personally to the extent possible, (b) delegate one task to an agent, or (c) delegate both tasks. Agency costs arise from a congruity problem, a double moral hazard problem, and a risk and incentive trade‐off. Delegation becomes more favorable the stronger the time constraint. Once delegation is preferred, the optimal extent of delegation depends on the relation of sensitivity to productivity ratios in both tasks. Agency costs not necessarily increase in delegation level.

Suggested Citation

  • Barbara Schöndube‐Pirchegger & Jens Robert Schöndube, 2019. "Optimal delegation choices in the presence of an incongruent performance measure and double moral hazard," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 40(4), pages 414-424, June.
    • Handle: RePEc:wly:mgtdec:v:40:y:2019:i:4:p:414-424
    DOI: 10.1002/mde.3011
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