Delegating Multiple Decisions

Alex Frankel

American Economic Journal: Microeconomics, 2016, vol. 8, issue 4, 16-53

Abstract: This paper shows how to extend the heuristic of capping an agent against her bias to delegation problems over multiple decisions. Caps may be exactly optimal when the agent has constant biases, in which case a cap corresponds to a ceiling on the weighted average of actions. More generally caps give approximately first-best payoffs when there are many independent decisions. The shape of the cap translates into economic intuition on how to let an agent trade off increases on one action for decreases on other actions. I discuss applications to political delegation, capital investments, monopoly price regulation, and tariff policy.

JEL-codes: D42 D72 D82 F13 L12 L51 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/mic.20130270
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Citations: View citations in EconPapers (11)

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