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Budgets under Delegation

Author

Listed:
  • Kimiko Terai

    (Faculty of Economics, Keio University)

  • Amihai Glazer

    (Department of Economics, 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, 2014. "Budgets under Delegation," Keio-IES Discussion Paper Series 2014-007, Institute for Economics Studies, Keio University.
    • Handle: RePEc:keo:dpaper:2014-007
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    File URL: https://ies.keio.ac.jp/upload/pdf/en/DP2014-007.pdf
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    More about this item

    Keywords

    Delegation; Signaling; Budget process; Expenses for public works; Change of government;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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