Decision Processes, Agency Problems, and Information: An Economic Analysis of Budget Procedures

Marino, Anthony M.; Matsusaka, John G.

doi:10.2139/ssrn.239252

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Decision Processes, Agency Problems, and Information: An Economic Analysis of Budget Procedures

47 Pages Posted: 11 Sep 2000

See all articles by Anthony M. Marino

Anthony M. Marino

University of Southern California - Marshall School of Business

John G. Matsusaka

University of Southern California - Marshall School of Business; USC Gould School of Law

There are 2 versions of this paper

Date Written: August 2001

Abstract

Many organizations attempt to manage agency problems not with incentive contracts but by keeping the principal involved in the decision process, that is, by limiting delegation. This paper develops a model to investigate the economics of several decision processes that are commonly used to set budgets in both the public and private sector. The key tradeoff is that partial delegation allows the principal to reject those projects he dislikes, but causes the agent to distort the information he transmits to the principal.

JEL Classification: L2, H3, G3

Suggested Citation: Suggested Citation

Marino, Anthony M. and Matsusaka, John G., Decision Processes, Agency Problems, and Information: An Economic Analysis of Budget Procedures (August 2001). Available at SSRN: https://ssrn.com/abstract=239252 or http://dx.doi.org/10.2139/ssrn.239252