The failure of the delegation principle in a principal-agent model with transfers

Mehdi Ayouni (), Franck Bien () and Thomas Lanzi ()
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Mehdi Ayouni: Université de Lorraine, Université de Strasbourg, CNRS, BETA
Franck Bien: Université Paris – Dauphine, PSL Research University, LEDa, LEGOS
Thomas Lanzi: Université de Lorraine, Université de Strasbourg, CNRS, BETA

Economics Bulletin, 2023, vol. 43, issue 1, 518 - 525

Abstract: In a principal-agent model with monetary transfers, we show that the delegation principle always fails even if preferences are perfectly aligned. This result holds if (i) the principal is committed to taking an action that is payoff-relevant for both parties if the agent rejects the proposed contract and (ii) the principal can contractually extract surplus from the agent.

Keywords: Contract; Delegation; Information; Transfers (search for similar items in EconPapers)
JEL-codes: D2 D8 (search for similar items in EconPapers)
Date: 2023-03-30
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