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Delegation chains

Dasgupta, Amil ORCID: 0000-0001-8474-9470 and Maug, Ernst (2022) Delegation chains. Financial Markets Group Discussion Papers (858). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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We ask why we observe multiple layers of decision-making in fund management with investors, sponsors, fund managers, and consultants, even if additional decision-makers are costly and do not contribute to superior performance. In our model, an investor hires a wealth manager ("sponsor"), who can delegate asset allocation decisions to a fund manager with investing abilities inferior to her own. Delegation results in lower performance but may be chosen because it reduces the sponsor's reputational risk: Offloading decisions to fund managers creates an additional decision-maker who may be responsible for inferior performance and garbles inferences about the sponsor's ability. We characterize when excessive delegation arises and the properties of delegation chains.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2022 The Authors
Divisions: Finance
Subjects: H Social Sciences > HG Finance
H Social Sciences > HC Economic History and Conditions
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
G - Financial Economics > G1 - General Financial Markets > G10 - General
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
Date Deposited: 18 May 2023 08:36
Last Modified: 16 May 2024 12:27

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