Strategic Delegation to Organizations

Petros Sekeris and Dimitrios Xefteris

Journal of Industrial Economics, 2021, vol. 69, issue 4, 900-922

Abstract: In this paper, we show that a principal can increase her payoffs by delegating decisions to an organization of agents—a group of rational individuals who interact according to specified rules—even when the agents’ preferences are identical to those of the principal. The mechanism driving this result rests on the limited impact of individual choices on the firm’s policy, when multiple agents interact in shaping it. In competitive environments, delegating decisions to organizations of agents augments the set of equilibrium outcomes, allowing for Pareto improvements. Hence, our results provide a novel rationale for decentralized decision‐making in firms.

Date: 2021
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