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Delegation versus authority
[Delegation versus Autorität]

Author

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  • Krähmer, Daniel

Abstract

The paper studies the role of delegation and authority within a principal-agent relation in which a non-contractible action has to be taken. The agent has private information relevant for the principal, but has policy preferences different from the principal. Consequently, an information revelation problem arises. We contribute to the literature by assuming transferable utility and contractibility of messages and decision rights. While delegation leads to loss of control, it facilitates the agent’s participation and leads to an informed decision. Moreover, message-contingent delegation creates incentives for information revelation. We derive the optimal contract for the principal and investigate when delegation outperforms authority.

Suggested Citation

  • Krähmer, Daniel, 2002. "Delegation versus authority [Delegation versus Autorität]," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-26, WZB Berlin Social Science Center.
    • Handle: RePEc:zbw:wzbmpg:fsiv0226
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    References listed on IDEAS

    as
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    Cited by:

    1. Stefan Ambec, 2003. "A Theory of Authority in Bilateral Contracting," CSEF Working Papers 102, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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    More about this item

    Keywords

    Delegation; Partial Contracting; Mechanism Design; Imperfect Commitment; Transferable Utility;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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