Relational Delegation

Ricardo Alonso and Niko Matouschek ()
Additional contact information
Niko Matouschek: Northwestern University

No 1454, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We explore the optimal delegation of decision rights by a principal to a better informed but biased agent. In an infinitely repeated game a long lived principal faces a series of short lived agents. Every period they play a cheap talk game ala Crawford and Sobel (1982) with constant bias, quadratic loss functions and general distributions of the state of the world. We characterize the optimal delegation schemes for all discount rates and show that they resemble organizational arrangements that are commonly observed, including centralization and threshold delegation. For small biases threshold delegation is optimal for almost all distributions. Outsourcing can only be optimal if the principal is sufficiently impatient.

Keywords: delegation; relational contract; cheap talk (search for similar items in EconPapers)
JEL-codes: D23 D82 L23 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2005-01
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (2)

Published - published in: RAND Journal of Economics, 2007, 38 (4), 1070 - 1089

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Related works:
Journal Article: Relational delegation (2007)
Working Paper: Relational delegation (2007)
Working Paper: Relational Delegation (2005)
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