Piero Gottardi (),
Jean-Marc Tallon () and
Paolo Ghirardato ()
No ECO2011/26, Economics Working Papers from European University Institute
This paper studies the costs and benefits of delegating decisions to superiorly informed agents relative to the use of rigid, non discretionary contracts. The main focus of the paper lies in the analysis of the costs of delegation, primarily agency costs, versus their benefits, primarily the flexibility of the action choice. We first determine and characterize the properties of the optimal flexible contract. We then show that the higher the agent’s degree of risk aversion, the higher is the agency costs of delegation and the less profitable a flexible contract relative to a rigid one. When the parties to not have sharp probability beliefs, the agent’s degree of imprecision aversion introduces another agency cost, which again reduces the relative profitability of flexible contracts.
Keywords: Delegation; Flexibility; Agency Costs; Multiple Priors; Imprecision Aversion (search for similar items in EconPapers)
JEL-codes: D86 D82 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://cadmus.eui.eu/bitstream/handle/1814/18096/ECO_2011_26.pdf?sequence=1 main text
Journal Article: Flexible contracts (2017)
Working Paper: Flexible contracts (2017)
Working Paper: Flexible contracts (2015)
Working Paper: Flexible contracts (2011)
Working Paper: Flexible Contracts (2010)
Working Paper: Flexible Contracts (2009)
Working Paper: Flexible contracts (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2011/26
Access Statistics for this paper
More papers in Economics Working Papers from European University Institute Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Julia Valerio ().