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Delegation and Incentives
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Delegation and Incentives

Author

Listed:
  • Bester, Helmut
  • Krähmer, Daniel

Abstract

This paper analyses the relation between authority and incentives. It extends the standard principal--agent model by a project selection stage in which the principal can either delegate the choice of project to the agent or keep the authority. The agent's subsequent choice of effort depends both on monetary incentives and the selected project. We find that the consideration of effort incentives makes the principal less likely to delegate the authority over projects to the agent. In fact, if the agent is protected by limited liability, delegation is never optimal.

Suggested Citation

  • Bester, Helmut & Krähmer, Daniel, 2007. "Delegation and Incentives," CEPR Discussion Papers 6042, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6042
    as

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    More about this item

    Keywords

    Authority; Delegation; Limited liability; Moral hazard; Principal-agent problem;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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