Repeated Delegation

58 Pages Posted: 22 Jan 2015 Last revised: 1 Jun 2018

Elliot Lipnowski

University of Chicago - Department of Economics

Joao Ramos

Marshall School of Business - University of Southern California

Date Written: May 25, 2018

Abstract

In an ongoing relationship of delegated decision making, a principal consults a biased agent to assess projects' returns. In equilibrium, the principal allows future bad projects to reward fiscal restraint, but cannot commit to indefinite rewards. We characterize equilibrium payoffs (at fixed discounting), showing that Pareto optimal equilibria are implemented via a two-regime 'Dynamic Capital Budget'. Rather than facing backloaded rewards—as in dynamic agency models with commitment power—the agent loses autonomy as time progresses. This transition toward conservatism echoes the life cycle of an organization: as it matures, it generates lower revenue at a higher yield.

Keywords: delegation, limited commitment, repeated game, capital budgeting

JEL Classification: C73, D23, D82, D86, G31

Suggested Citation

Lipnowski, Elliot and Ramos, Joao, Repeated Delegation (May 25, 2018). Available at SSRN: https://ssrn.com/abstract=2552926 or http://dx.doi.org/10.2139/ssrn.2552926

Elliot Lipnowski

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

Joao Ramos (Contact Author)

Marshall School of Business - University of Southern California ( email )

701 Exposition Boulevard, STE 205
Los Angeles, CA 90089-1422
United States

HOME PAGE: http://www.joaoaramos.com/

Register to save articles to
your library

Register

Paper statistics

Downloads
386
rank
70,103
Abstract Views
1,700
PlumX