Contracting for Information Under Imperfect Commitment

UC Berkeley Competition Policy Center Working Paper No. CPC05-51

35 Pages Posted: 28 Jan 2005

See all articles by Vijay Krishna

Vijay Krishna

Penn State University

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group

Date Written: November 2004

Abstract

Organizational theory suggests that authority should lie in the hands of those with information, yet the power to transfer authority is rarely absolute in practice. We investigate the validity and application of this advice in a model of optimal contracting between an uninformed principal and informed agent where the principal's commitment power is imperfect. We show that while full alignment of interests combined with delegation of authority is feasible, it is never optimal. The optimal contract is "bang-bang" - in one region of the state space, full alignment takes place, in the other, no alignment takes place. We then compare these contracts to those in which the principal has full commitment power as well as to several "informal" institutional arrangements.

JEL Classification: D23, D82

Suggested Citation

Krishna, Vijay and Morgan, John, Contracting for Information Under Imperfect Commitment (November 2004). UC Berkeley Competition Policy Center Working Paper No. CPC05-51. Available at SSRN: https://ssrn.com/abstract=655441 or http://dx.doi.org/10.2139/ssrn.655441

Vijay Krishna (Contact Author)

Penn State University ( email )

Kern 516
University Park, PA 16802-3306
United States
814-863-8543 (Phone)
814-863-4775 (Fax)

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-2669 (Phone)
810-885-5959 (Fax)

HOME PAGE: http://faculty.haas.berkeley.edu/rjmorgan/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
123
Abstract Views
1,667
rank
239,972
PlumX Metrics