Optimal Delegation

52 Pages Posted: 29 Dec 2005

See all articles by Ricardo Alonso

Ricardo Alonso

London School of Economics & Political Science (LSE) - Department of Management

Niko Matouschek

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: October 2005

Abstract

We analyse the optimal delegation of decision rights by a uninformed principal to an informed but biased agent. When the principal cannot use message-contingent transfers, she offers the agent a set of decisions from which he can choose his preferred one. We fully characterize the optimal delegation set for general distributions of the state space and preferences with arbitrary continuous state-dependent biases. We also provide necessary and sufficient conditions for particular delegation sets to be optimal. Finally, we show that the optimal delegation set takes the form of a single interval if the agent's preferences are sufficiently similar to the principal's.

Keywords: Delegation, decision rights, mechanism design

JEL Classification: D82, L23

Suggested Citation

Alonso, Ricardo and Matouschek, Niko, Optimal Delegation (October 2005). CEPR Discussion Paper No. 5289, Available at SSRN: https://ssrn.com/abstract=872748

Ricardo Alonso

London School of Economics & Political Science (LSE) - Department of Management ( email )

United Kingdom

HOME PAGE: http://www.lse.ac.uk/management/people/ralonso.aspx

Niko Matouschek (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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Germany

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