Delegation Versus Centralization: The Role of Externalities

15 Pages Posted: 28 Nov 2006

See all articles by Sergio Currarini

Sergio Currarini

University of Leicester - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia

Francesco Feri

University of London

Date Written: March 2006

Abstract

We study a simple contracting game with a principal and two agents. Contracts exert an externalities on non contractors. The principal can either contract both agents in a centralized manner, or delegate one agent to contract the other. We show that the choice of the principal depends on the sign of the externality. If this is positive, the principal prefers to delegate as long as the agency costs are not too high; if the externality is negative, the principal prefers to centralize for all sizes of agency costs.

Keywords: Contracts, Externalities, Centralization, Delegation

JEL Classification: D02, D23, C71, C72

Suggested Citation

Currarini, Sergio and Feri, Francesco, Delegation Versus Centralization: The Role of Externalities (March 2006). University Ca' Foscari of Venice Economics Research Paper No. 15/06. Available at SSRN: https://ssrn.com/abstract=947452 or http://dx.doi.org/10.2139/ssrn.947452

Sergio Currarini (Contact Author)

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Francesco Feri

University of London ( email )

Senate House
Malet Street
London, WC1E 7HU
United Kingdom

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