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Disagreement and Informal Delegation in Organizations

Emre Ekinci and Nikolaos Theodoropoulos

University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics

Abstract: To investigate delegation decisions within organizations, we develop a principal-agent model in which the principal can only informally delegate authority to the agent and the parties openly disagree with each other in the sense of differing prior beliefs about the optimal course of action. Our main analysis shows that the degree of disagreement determines what kind of delegation policy the principal can commit to and this, in turn, alters the agent's effort for information acquisition. In an extension, we consider the principal's incentives to provide the agent with training, which reduces the cost of acquiring information. The analysis reveals that training provision is higher under delegation and that training facilitates delegation. We use a cross section of matched employer-employee data to examine the extent to which the empirical implications of this extension are consistent with data.

Keywords: Delegation of authority; Differing priors (search for similar items in EconPapers)
JEL-codes: L2 M0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hrm, nep-mic and nep-ore
Date: 2019-09
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Persistent link: https://EconPapers.repec.org/RePEc:ucy:cypeua:11-2019

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