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Optimal delegation choices in the presence of an incongruent performance measure and double moral hazard
Author(s) -
SchöndubePirchegger Barbara,
Schöndube Jens Robert
Publication year - 2019
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.3011
Subject(s) - delegate , delegation , moral hazard , task (project management) , agency (philosophy) , constraint (computer aided design) , microeconomics , principal–agent problem , agency cost , incentive , business , measure (data warehouse) , relation (database) , economics , computer science , finance , mathematics , management , sociology , social science , corporate governance , geometry , database , shareholder , programming language
An owner‐manager can delegate two tasks to an agent. A time constraint prevents him from completing both tasks at first‐best levels. He can (a) perform both tasks personally to the extent possible, (b) delegate one task to an agent, or (c) delegate both tasks. Agency costs arise from a congruity problem, a double moral hazard problem, and a risk and incentive trade‐off. Delegation becomes more favorable the stronger the time constraint. Once delegation is preferred, the optimal extent of delegation depends on the relation of sensitivity to productivity ratios in both tasks. Agency costs not necessarily increase in delegation level.