Transfer of authority within hierarchies

Pinghan Liang

Review of Economic Design, 2017, vol. 21, issue 4, No 3, 273-290

Abstract: Abstract This paper studies delegation and communication in a model of three-tier hierarchy. There is an uninformed principal, and uninformed intermediary, and an informed agent. Under delegation the principal chooses an interval of actions to delegate to the intermediary, and the intermediary chooses a sub-interval from that interval to delegate to the agent. Under communication, the agent communicates with the intermediary, after which the intermediary communicates with the principal. We characterize the equilibrium outcomes under delegation and communication. We show that under delegation the principal can appoint a more biased individual to be the intermediary, and a less biased individual to be the agent. Furthermore, we demonstrate that the principal can prefer to communicate with the subordinates rather than delegate decision rights to them if the intermediary and the agent have opposing biased.

Keywords: Delegation; Hierarchies; Communication (search for similar items in EconPapers)
JEL-codes: D72 D78 D82 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10058-017-0206-8

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