Delegation and Incentives

Helmut Bester and Krähmer, Daniel

No 6042, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyses the relation between authority and incentives. It extends the standard principal--agent model by a project selection stage in which the principal can either delegate the choice of project to the agent or keep the authority. The agent's subsequent choice of effort depends both on monetary incentives and the selected project. We find that the consideration of effort incentives makes the principal less likely to delegate the authority over projects to the agent. In fact, if the agent is protected by limited liability, delegation is never optimal.

Keywords: Authority; Delegation; Limited liability; Moral hazard; Principal-agent problem (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-bec, nep-mic and nep-ppm
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Citations: View citations in EconPapers (1)

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