Project Assignment Rights and Incentives for Eliciting Ideas

Anil Arya (), Jonathan Glover () and Bryan Routledge ()
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Anil Arya: The Ohio State University, 2100 Neil Avenue, Columbus, Ohio 43210
Jonathan Glover: GSIA, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213

Management Science, 2002, vol. 48, issue 7, 886-899

Abstract: In this paper, we study an incentive problem that arises between a principal and two agents because they value a real option differently. The real option in our model is a timing option. The agents have limited capacity to undertake projects, and each agent's capacity can be filled now or later. Because the principal cares about capacity in the aggregate but each agent cares only about his own capacity, the agents assign a higher value to the option to wait. As a result, agents sometimes withhold ideas from the principal. We show that decentralization can be a solution to this problem. Delegating assignment rights to an agent reduces the option value of waiting for the other agent sufficiently that he is willing to reveal his ideas.

Keywords: real options; incentive problems; decentralization; promotion (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (4)

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