 Delegating the decision-making authority to terminate a sequential projectYasunari Tamada and Tsung-Sheng Tsai () Journal of Economic Behavior & Organization, 2014, vol. 99, issue C, 178-194 Abstract: This paper considers a two-stage project which requires investments to be made by different agents, who have career concerns, at each stage. The principal needs to decide whether the project should be continued or not after the first-stage outcome is realized. The principal can either keep the decision-making authority regarding the termination policy, or else delegate it to one of the agents. With career concerns, the first-stage agent always wants to continue the project, in which case the sunk cost fallacy occurs. On the contrary, the second-stage agent may prefer to stop it voluntarily to protect his reputation. Therefore, when the career concerns are strong, the principal should delegate the authority to the second-stage agent if an early termination of the project is also the best policy for the principal; while if the career concerns are weak, the principal should keep the authority. Keywords: D23; D86; L14; Career concerns; Delegation; Sequential investment; Sunk cost fallacy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:99:y:2014:i:c:p:178-194 DOI: 10.1016/j.jebo.2014.01.007 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 |
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