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Budgets Under Delegation

In: The Political Economy of Fiscal Consolidation in Japan

Author

Listed:
  • Kimiko Terai

    (Keio University)

  • Amihai Glazer

    (University of California, Irvine)

Abstract

Consider a principal who sets a budget that the agent allocates among different services. Because the preferences of the agent may differ from those of the principal, the budget the principal sets can be lower or higher than in the first-best solution. When the principal is uncertain about the agent’s preferences, the agent may choose an allocation that signals his type, thereby affecting the size of the budget the principal will set in the following period. The equilibrium may have separation or pooling. In a pooling equilibrium, the agent may mis-represent his preferences, aiming to get a large budget in the future period.

Suggested Citation

  • Kimiko Terai & Amihai Glazer, 2015. "Budgets Under Delegation," Advances in Japanese Business and Economics, in: Toshihiro Ihori & Kimiko Terai (ed.), The Political Economy of Fiscal Consolidation in Japan, edition 127, chapter 0, pages 167-192, Springer.
    • Handle: RePEc:spr:advchp:978-4-431-55127-0_7
    DOI: 10.1007/978-4-431-55127-0_7
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    Cited by:

    1. Kimiko Terai & Amihai Glazer, 2018. "Rivalry among agents seeking large budgets," Journal of Theoretical Politics, , vol. 30(4), pages 388-409, October.

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