Delegation in Long-Term Relationships

Miriam Schütte and Philipp Wichardt

No 480, SOEPpapers on Multidisciplinary Panel Data Research from DIW Berlin, The German Socio-Economic Panel (SOEP)

Abstract: This paper considers the e effcts of a two-period interaction on the decision of a principal to delegate authority to a potentially biased but better informed agent. Compared to the (repeated) one-period case, the agent's first period actions may also signal his type which in turn impacts wages in Period 2. As a result, biased agents have an incentive not to follow their own preferences in Period 1, thereby inducing the principal to delegate more often. Moreover, we find that, depending on the players' relative utilities and the wage schedule, long term relationships will increase aggregate welfare. Finally, to empirically support our findings, we analyse data from the German Socio-Economic Panel (SOEP) which show that temporary workers indeed experience less autonomy in their decisions.

Keywords: delegation; signalling; reputation (search for similar items in EconPapers)
JEL-codes: C72 C73 D82 D86 L22 M54 (search for similar items in EconPapers)
Pages: 36 p.
Date: 2012
New Economics Papers: this item is included in nep-bec, nep-cta and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwsop:diw_sp480

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