Delegation, Risk, and Project Scope

Andreas Roider

Journal of Institutional and Theoretical Economics (JITE), 2009, vol. 165, issue 2, 193-209

Abstract: This paper studies a partial-contracting model where an agent may provide effort to increase a project´s scope before some later (operative) decisions have to be taken. Consistent with existing empirical evidence, we find a positive relationship between exogenous risk and delegation. That is, only if the exogenous risk is sufficiently large may the risk-neutral principal prefer to delegate authority over decisions to the risk-averse agent. Intuitively, for incentive reasons, the principal may optimally want to allow the agent to reduce his risk exposure. Nevertheless, even endogenous risk may be higher when the risk-averse agent has control.

JEL-codes: D21 D23 D86 G34 L14 (search for similar items in EconPapers)
Date: 2009
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