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When Optimal Centralized Mechanism Prescribesto Follow Agent's Recommendation

Author

Listed:
  • Sandrine Ollier

    (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates to which extent the optimal centralized mechanism as defined by the Revelation Principle may optimally prescribe to follow the agent's recommendation. We define two sub-cases, called delegation and authority, being parts of the consideredcentralized organization, a decision being delegated to the agent when his recommendation is followed by the principal. We assume that there are both adverse selection and moral hazard under delegation and moral hazard under authority and the agent is risk neutral but protected by limited liability on utility. We find that delegation can be efficient even if the principal'stalent is higher than the expected talent of the unknown agent.

Suggested Citation

  • Sandrine Ollier, 2003. "When Optimal Centralized Mechanism Prescribesto Follow Agent's Recommendation," Post-Print halshs-00178569, HAL.
    • Handle: RePEc:hal:journl:halshs-00178569
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00178569v2
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    File URL: https://shs.hal.science/halshs-00178569v2/document
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