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The failure of the delegation principle in a principal-agent model with transfers

Author

Listed:
  • Mehdi Ayouni
  • Franck Bien
  • Thomas Lanzi

Abstract

In a principal-agent model with monetary transfers, we show that the delegation principle always fails even if preferences are perfectly aligned. This result holds if (i) an action that is payoff-relevant for both the principal and the agent has to be taken even if the agent rejects the proposed contract and (ii) the principal can contractually extract surplus from the agent.

Suggested Citation

  • Mehdi Ayouni & Franck Bien & Thomas Lanzi, 2022. "The failure of the delegation principle in a principal-agent model with transfers," Working Papers of BETA 2022-14, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2022-14
    as

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    File URL: http://beta.u-strasbg.fr/WP/2022/2022-14.pdf
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    References listed on IDEAS

    as
    1. Keith Krehbiel, 2004. "Legislative Organization," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 113-128, Winter.
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    4. Helmut Bester & Daniel Krähmer, 2008. "Delegation and incentives," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 664-682, September.
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    7. Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Contract; Delegation; Information; Transfers.;
    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

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