Budgets under Delegation

Kimiko Terai and Amihai Glazer
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Kimiko Terai: Faculty of Economics, Keio University

No 2014-007, Keio-IES Discussion Paper Series from Institute for Economics Studies, Keio University

Abstract: Consider a principal who sets a budget that the agent allocates among different services. Because the preferences of the agent may differ from those of the principal, the budget the principal sets can be lower or higher than in the first-best solution. When the principal is uncertain about the agent's preferences, the agent may choose an allocation that signals his type, thereby affecting the size of the budget the principal will set in the following period. The equilibrium may have separation or pooling. In a pooling equilibrium, the agent may mis-represent his preferences, aiming to get a large budget in the future period.

Keywords: Delegation; Signaling; Budget process; Expenses for public works; Change of government (search for similar items in EconPapers)
JEL-codes: D73 D82 H61 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-11
New Economics Papers: this item is included in nep-mic and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:keo:dpaper:2014-007

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