Delegated Expertise - When are Good Projects Bad News?

8 Pages Posted: 20 Jan 2003

See all articles by Markus Walzl

Markus Walzl

RWTH Aachen University - Chair for Economics (Microeconomics)

Eberhard Feess

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH

Date Written: October 29, 2002

Abstract

We analyze a model of delegated expertise with limited liability where both the agent's effort and his findings are unobservable. We show that the latter assumption reduces the agent's effort and the principal's profit in the unique subgame perfect equilibrium. Most interestingly, the principal's profit may decrease in the percentage of good projects if and only if the agent's findings are unobservable. Hence, good projects may be bad news for the principal.

Keywords: delegated expertise, information revelation, hidden action, limited liability

JEL Classification: D82, G21

Suggested Citation

Walzl, Markus and Feess, Eberhard, Delegated Expertise - When are Good Projects Bad News? (October 29, 2002). Available at SSRN: https://ssrn.com/abstract=361180 or http://dx.doi.org/10.2139/ssrn.361180

Markus Walzl (Contact Author)

RWTH Aachen University - Chair for Economics (Microeconomics) ( email )

Aachen, 52056
Germany
0049 241 809 6157 (Phone)
0049 241 809 2345 (Fax)

Eberhard Feess

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
72
Abstract Views
864
rank
329,956
PlumX Metrics