Delegating Budgets when Agents Care About Autonomy

Michael Kuhn

Discussion Papers from Department of Economics, University of York

Abstract: We consider resource allocation within an organisation when agents have a preference for autonomy and show how delegation bears on moral hazard and adverse selection. Agents may care about autonomy for reasons of job-satisfaction, status or greater reputation of perform-ance under autonomy. Separating allocations (overall budget and degree of delegation) are characterised depending on the preference for autonomy. As the latter is increasing, the de-gree of delegation assigned to productive and unproductive agents becomes more similar and may even be reversed when financial transfers are used. If agents’ preference for monetary rewards is sufficiently weak, the principal will not employ financial transfers and pooling arises if the preference for autonomy is strong.

Keywords: adverse selection; capital budgeting; delegation; moral hazard; non-responsiveness; resource allocation (search for similar items in EconPapers)
JEL-codes: D82 G31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm and nep-pol
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