Incentives, reputation and the allocation of authority

Florian Englmaier, Ales Filipi and Ravi Singh

Journal of Economic Behavior & Organization, 2010, vol. 76, issue 2, 413-427

Abstract: We address the question how much authority a principal should delegate to a manager with conflicting interests and uncertain ability in a context in which the manager has both compensation-based and reputational incentives. The optimal level of authority balances the value of the manager's decision-making expertise against the cost of ensuring that the manager uses his discretion productively. Reputational incentives reduce the necessary monetary incentives to discourage purely opportunistic behavior, but may cause the manager to pursue conservative courses of action to preserve his reputation. This undermines the benefits of delegating control, leading to decreased managerial authority and stronger monetary incentives. When the principal contracts with the manager repeatedly, she delegates additional authority early in the relationship in order to screen for managers of high ability. Decentralization of decision making may thus occur even if the static benefits from decentralization are negative.

Keywords: Agency; problems; Delegation; Compensation; contracts; Job; design; Career; concerns; Managerial; conservatism (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-2681(10)00127-7
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Incentives, Reputation and the Allocation of Authority (2010)
Working Paper: Incentives, Reputation and the Allocation of Authority (2010)
Working Paper: Incentives, reputation and the allocation of authority (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:76:y:2010:i:2:p:413-427

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().