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Title:Delegation of Authority as an Optimal (In)complete Contract PDF Logo
Authors:Roider, Andreas
Issue Date:2004
Series/Report no.:IZA Discussion paper series 1298
Abstract:The present paper aims to contribute to the literature on the foundations of incomplete contracts by providing conditions under which simple delegation of authority is the solution to the complete-contracting problem of the parties. We consider a hold-up framework where both parties profit from an investment that raises the value of an asset. Delegation turns out to be optimal if (i) the decision-dependent parts of the payoffs of the parties are linear in the asset value, and (ii) decisions have no investment-independent effect. If overinvestment might be an issue, delegation, however, with restricted competencies is optimal if some additional continuity requirements are met.
Subjects:delegation
decentralization
authority
incomplete contracts
hold-up
property rights
JEL:L14
D23
D82
L22
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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