Delegation Versus Centralization: The Role of Externalities

Sergio Currarini () and Francesco Feri
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Francesco Feri: Department of Economics, University Of Venice Ca’ Foscari

No 2006_15, Working Papers from University of Venice "Ca' Foscari", Department of Economics

Abstract: We study a simple contracting game with a principal and two agents. Contracts exert an externalities on non contractors. The principal can either contract both agents in a centralized manner, or delegate one agent to contract the other. We show that the choice of the principal depends on the sign of the externality. If this is positive, the principal prefers to delegate as long as the agency costs are not too high; if the externality is negative, the principal prefers to centralize for all sizes of agency costs.

Keywords: Contracts; Externalities; Centralization; Delegation. (search for similar items in EconPapers)
JEL-codes: D02 D23 C71 C72 (search for similar items in EconPapers)
Date: Written
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Journal Article: Delegation versus centralization: The role of externalities (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:ven:wpaper:2006_15

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