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Allocation of Decision-Making Authority with Principal's Reputation Concerns

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  • Tsung-Sheng Tsai
  • Yasunari Tamada

Abstract

This paper analyzes the allocation of decision-making authority when the principal has reputation concerns. The principal can either keep the authority and consult the agent (an expert), or delegate the authority to the agent; however, the outside evaluator cannot observe the allocation of authority. Hence, delegation can provide a way to manipulate the principal's ex post reputation. In general, the principal keeps the authority too often when she has the opportunity of delegation. When the evaluator believes that the agent may make the decision sometimes, the principal has less incentive to make the right decisions

Suggested Citation

  • Tsung-Sheng Tsai & Yasunari Tamada, 2004. "Allocation of Decision-Making Authority with Principal's Reputation Concerns," Econometric Society 2004 Far Eastern Meetings 701, Econometric Society.
    • Handle: RePEc:ecm:feam04:701
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    File URL: http://repec.org/esFEAM04/up.19931.1080716758.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Delegation; Principal's Reputation Concerns; Cheap Talk;
    All these keywords.

    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
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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