Capital Budgeting and Delegation
University of Chicago - Finance
Northwestern University - Kellogg School of Management
U. of Chicago Finance Working Paper No. 452
As part of our ongoing research into capital budgeting processes as responses to decentralized information and incentive problems, we focus in this paper on when a level of a managerial hierarchy will delegate the allocation of capital across projects and time to the level below it. In our model, delegation is a way to save on costly investigation of proposed projects. Therefore, it is more extensive the larger are the costs of such investigations. This delegation takes advantage of the fact that the lower-level manager's preferences are assumed to be similar (though not identical) to those of the higher level.
Number of Pages in PDF File: 39
JEL Classification: G31
Date posted: August 14, 1998