Delegation and Opportunism

Kouroche Vafaï

Journal of Institutional and Theoretical Economics (JITE), 2004, vol. 160, issue 3, 498-521

Abstract: We analyze the effect of opportunism on organizational structure. In our moral-hazard environment, a principal chooses between a principal-agent organization where the principal itself monitors the output produced by the agent, and a principal-supervisor~agent hierarchy where monitoring is delegated. We find that as long as only one form of opportunism may take place in a principal-supervisor~agent hierarchy, this structure dominates a principal-agent organization. We then show that when multiple forms of opportunism may occur in a principal-supervisor~agent hierarchy, this structure may strictly be dominated by a principal-agent organization.

JEL-codes: D82 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (2)

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