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Delegating Budgets when Agents Care About Autonomy

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  • Michael Kuhn

Abstract

We consider resource allocation within an organisation when agents have a preference for autonomy and show how delegation bears on moral hazard and adverse selection. Agents may care about autonomy for reasons of job-satisfaction, status or greater reputation of perform-ance under autonomy. Separating allocations (overall budget and degree of delegation) are characterised depending on the preference for autonomy. As the latter is increasing, the de-gree of delegation assigned to productive and unproductive agents becomes more similar and may even be reversed when financial transfers are used. If agents’ preference for monetary rewards is sufficiently weak, the principal will not employ financial transfers and pooling arises if the preference for autonomy is strong.

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  • Michael Kuhn, "undated". "Delegating Budgets when Agents Care About Autonomy," Discussion Papers 04/10, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:04/10
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    Cited by:

    1. Kuhn, Michael & Gundlach, Erich, 2006. "Delegating budgets when agents care about autonomy," Thuenen-Series of Applied Economic Theory 69, University of Rostock, Institute of Economics.

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    More about this item

    Keywords

    adverse selection; capital budgeting; delegation; moral hazard; non-responsiveness; resource allocation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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