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Title:Delegation of Authority as an Optimal (In)complete Contract PDF Logo
Authors:Roider, Andreas
Issue Date:2003
Series/Report no.:Bonn econ discussion papers 2003,8
Abstract:In a holdup framework, I provide conditions under which simple delegation of authority is a solution to the complete-contracting problem even though ex-post actions are ex-ante contractible, and unlimited transfer payments are feasible. In particular, delegation turns out to be optimal if the payoff functions of the parties satisfy certain separability and symmetry conditions, and the parties face an underinvestment problem. This result is extended to the case of potential overinvestment and to multi-dimensional effort provision. Besides providing a complete-contracting rationale for delegation, the findings contribute to the foundation of incomplete contracts and the property-rights theory of the firm.
Subjects:delegation
decentralization
authority
incomplete contracts
holdup
property rights
JEL:L22
D82
L14
D23
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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