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Delegation and incentives
Author(s) -
Bester Helmut,
Krähmer Daniel
Publication year - 2008
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2008.00033.x
Subject(s) - delegate , delegation , incentive , principal (computer security) , liability , business , principal–agent problem , microeconomics , outcome (game theory) , limited liability , economics , finance , computer science , corporate governance , computer security , management , programming language
This article analyzes the relation between authority and incentives. It extends the standard principal‐agent model by a project selection stage in which the principal can either delegate the choice of project to the agent or keep the authority. The agent's subsequent choice of effort depends both on monetary incentives and the selected project. We find that the consideration of effort incentives makes the principal less likely to delegate the authority over projects to the agent. In fact, if the agent is protected by limited liability, delegation is never optimal.