Delegation with Endogenous States

Dino Gerardi, Lucas Maestri and Ignacio Monzon

Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: We present a model of delegation with moral hazard. A principal delegates a decision to an agent, who affects the distribution of the state of the world by exerting costly and unobservable effort. The principal faces a trade-off between (i) granting the agent discretion, so he can adapt the decision to the state and (ii) limiting the agent’s discretion, to induce him to exert effort. Our model is flexible on how effort affects the state distribution, thus capturing several distinct economic environments. Optimal delegation takes one of four simple forms, all commonly used in practice: floors, ceilings, floor-ceilings or gaps.

Keywords: delegation; moral hazard; endogenous state; floors; ceilings; caps; gaps (search for similar items in EconPapers)
Pages: 49 pages
Date: 2023
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.carloalberto.org/wp-content/uploads/2024/02/no.711.pdf (application/pdf)

Related works:
Working Paper: Delegation with Endogenous States (2024)
Working Paper: Delegation with Endogenous States (2024)
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:cca:wpaper:711

Access Statistics for this paper

More papers in Carlo Alberto Notebooks from Collegio Carlo Alberto Contact information at EDIRC.
Bibliographic data for series maintained by Giovanni Bert (giovanni.bert@carloalberto.org).