EconStor >
The University of Nottingham >
Centre for Decision Research and Experimental Economics (CeDEx), The University of Nottingham >
CeDEx Discussion Paper Series, The University of Nottingham >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/49693
  
Title:Optimal delegation with a finite number of states PDF Logo
Authors:Anesi, Vincent
Seidmann, Daniel
Issue Date:2011
Series/Report no.:CeDEx discussion paper series 2011-04
Abstract:This paper studies delegation without monetary transfers when the number of possible states is small, and therefore finite. To do so, we fully characterize the class of optimal delegation sets in the finite-state version of Holmstrom's (1984) seminal model and analyze their properties. Our finite state assumption entails the following results: (i) the agent never takes her ideal decision, and takes a decision strictly between her and the principal's ideal (thus compromising with the latter) in low enough states; (ii) the agent takes the same decision in high enough states, and is indifferent between the decision she takes and the next highest decision in every other state; (iii) the agent may be induced to take decisions outside the support of the principal's ideal decisions; (iv) marginal increases in the agent's bias do not (generically) cause optimal delegation sets to shrink, and may increase the variance of the decision taken by the agent. We also show that the principal and the agent may both be better off if the latter cannot distinguish between some states.
Subjects:optimal delegation
finite states
Ally Principle
expertise
Document Type:Working Paper
Appears in Collections:CeDEx Discussion Paper Series, The University of Nottingham

Files in This Item:
File Description SizeFormat
662542053.pdf995.8 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/49693

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.