Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/34719
Authors: 
Roider, Andreas
Year of Publication: 
2007
Series/Report no.: 
IZA Discussion Papers 3117
Abstract: 
This paper studies a partial-contracting model where an agent may provide effort to increase a project's scope before some later decisions have to be taken. Consistent with existing empirical evidence, we find a positive relationship between exogenous risk and delegation. That is, we show that only if exogenous risk is sufficiently large, the risk-neutral principal may prefer to delegate authority over decisions to the risk-averse agent. Intuitively, for incentive reasons, the principal may optimally want to allow the agent to reduce his risk exposure. Nevertheless, even endogenous risk may be higher when the risk-averse agent has control.
Subjects: 
Delegation
authority
risk
partial contracting
Document Type: 
Working Paper

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