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Optimal Sequential Delegation

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  • Kovác, Eugen
  • Krähmer, Daniel

Abstract

The paper extends the optimal delegation framework pioneered by Holmström (1977, 1984) to a dynamic environment where, at the outset, the agent privately knows his ability to interpret decision relevant private information received later on. We show that any mechanism can be implemented by a sequential menu of delegation sets where the agent first picks a delegation set and then chooses an action within this set. For the uniform{quadratic case, we characterize when sequential delegation is strictly better than static delegation and derive the optimal delegation menu. We provide sufficient conditions so that our results extend beyond the uniform distribution.

Suggested Citation

  • Kovác, Eugen & Krähmer, Daniel, 2013. "Optimal Sequential Delegation," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 427, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:427
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    3. Pinghan Liang, 2017. "Transfer of authority within hierarchies," Review of Economic Design, Springer;Society for Economic Design, vol. 21(4), pages 273-290, December.

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    More about this item

    Keywords

    optimal delegation; sequential screening; dynamic mechanism design; non-transferable utility;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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