Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93831
Authors: 
Bester, Helmut
Year of Publication: 
2004
Series/Report no.: 
SFB/TR 15 Discussion Paper 23
Abstract: 
This paper views authority as the right to undertake decisions that have external effects on other members of the organization. Because of contractual incompleteness, monetary incentives are insufficient to internalize these effects in the decision maker's objective. The optimal assignment of decision rights minimizes the resulting inefficiencies. We illustrate this in a principal-agent model where the principal retains the authority to select '€˜large' projects but delegates the decision right to the agent to implement '€˜small' projects. Extensions of the model discuss the role of effort incentives, asymmetric information and multistage decisions.
Subjects: 
Authority
Control Rights
Decision Rights
Delegation
Externalities
Incomplete Contracts
Theory of the Firm
JEL: 
D23
D82
L22
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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