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Optimal delegation

Alonso, Ricardo and Matouschek, Niko (2008) Optimal delegation. Review of Economic Studies, 75 (1). pp. 259-293. ISSN 0034-6527

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Identification Number: 10.1111/j.1467-937X.2007.00471.x

Abstract

We analyse the design of decision rules by a principal who faces an informed but biased agent and who is unable to commit to contingent transfers. The contracting problem reduces to a delegation problem in which the principal commits to a set of decisions from which the agent chooses his preferred one. We characterize the optimal delegation set and perform comparative statics on the principal's willingness to delegate and the agent's discretion. We also provide conditions for interval delegation to be optimal and show that they are satisfied when the agent's preferences are sufficiently aligned. Finally, we apply our results to the regulation of a privately informed monopolist and to the design of legislatives rules.

Item Type: Article
Official URL: http://restud.oxfordjournals.org/
Additional Information: © 2008 The Review of Economic Studies Limited
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Sets: Departments > Management
Date Deposited: 05 Aug 2014 13:53
Last Modified: 05 Aug 2014 14:02
URI: http://eprints.lse.ac.uk/id/eprint/58665

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