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A Model of Delegated Project Choice With Application to Merger Policy

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  • John Vickers
  • Mark Armstrong

Abstract

We present a model in which a principal delegates the choice of project to an agent with different preferences. A project`s characteristics are verifiable once presented to the principal, but the principal does not know how many projects are available to the agent. The principal chooses the set of projects which the agent can implement. Three frameworks are considered: (i) a static setting in which the set of available projects is exogenous to the agent but uncertain; (ii) a dynamic setting in which by expending effort the agent can affect the number of projects, and (iii) a dynamic setting in which the agent must wait for projects to materialize. The model is applied to the choice of welfare standard for merger policy.

Suggested Citation

  • John Vickers & Mark Armstrong, 2007. "A Model of Delegated Project Choice With Application to Merger Policy," Economics Series Working Papers 347, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:347
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    References listed on IDEAS

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    1. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
    2. Joseph Farrell & Michael Katz, 2006. "The Economics of Welfare Standards in Antitrust," CPI Journal, Competition Policy International, vol. 2.
    3. Armstrong, M., 1994. "Delegation and discretion," Discussion Paper Series In Economics And Econometrics 9421, Economics Division, School of Social Sciences, University of Southampton.
    4. Ricardo Alonso & Niko Matouschek, 2008. "Optimal Delegation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(1), pages 259-293.
    5. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    6. Armstrong, Mark, 1995. "Delegation and discretion," MPRA Paper 17069, University Library of Munich, Germany.
    7. Sven-Olof Fridolfsson, 2007. "A Consumer Surplus Defense in Merger Control," Contributions to Economic Analysis, in: The Political Economy of Antitrust, pages 287-302, Emerald Group Publishing Limited.
    8. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1999. "Informal Authority in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 56-73, April.
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    Cited by:

    1. Weese, Eric, 2008. "Political Mergers as Coalition Formation : Evidence from Japanese Municipal Amalgamations," CCES Discussion Paper Series 5, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.

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    More about this item

    Keywords

    Delegation; Principal-Agent; Search; Merger Policy;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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