Repeated delegation

Elliot Lipnowski and João Ramos

Journal of Economic Theory, 2020, vol. 188, issue C

Abstract: In an ongoing relationship of delegated decision making, a principal consults a biased agent to assess projects' returns. In equilibrium, the principal allows future bad projects to reward fiscal restraint, but cannot commit to indefinite rewards. We characterize equilibrium payoffs (at fixed discounting), showing that Pareto optimal equilibria are implemented via a two-regime ‘Dynamic Capital Budget’. Rather than facing backloaded rewards—as in dynamic agency models with commitment power—the agent loses autonomy as time progresses.

Keywords: Delegation; Limited commitment; Repeated game; Capital budgeting (search for similar items in EconPapers)
JEL-codes: C73 D23 D82 D86 G31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Repeated Delegation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:188:y:2020:i:c:s0022053118303260

DOI: 10.1016/j.jet.2020.105040

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