Capital Budgeting and Delegation
U. of Chicago Finance Working Paper No. 452
39 Pages Posted: 14 Aug 1998
Date Written: November 1997
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.
JEL Classification: G31
Suggested Citation: Suggested Citation