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The Organization of Supplier Networks: Effects of Delegation and Intermediation
Author(s) -
Mookherjee Dilip,
Tsumagari Masatoshi
Publication year - 2004
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.1111/j.1468-0262.2004.00529.x
Subject(s) - intermediation , delegation , business , industrial organization , business administration , economics , management , finance
In a one‐principal two‐agent model with adverse selection and collusion among agents, we show that delegating to one agent the right to subcontract with the other agent always earns lower profit for the principal compared with centralized contracting. Delegation to an intermediary is also not in the principal's interest if the agents supply substitutes. It can be beneficial if the agents produce complements and the intermediary is well informed.