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| Author: | Melumad, N. Mookherjee, D. Reichelstein, S. |
| Title: | Contract complexity, incentives, and the value of delegation |
| Journal: | Journal of Economics and Management Strategy
1997 : SUMMER, VOL. 6:2, p. 257-289 |
| Index terms: | CONTRACTS COMPLEXITY DELEGATION CENTRALISATION ORGANIZATIONS |
| Language: | eng |
| Abstract: | This article studies the value of delegation when organizations are constrained by a bound on the number of contingencies in any contracts. Delegation arrangements is frequently inferior to centralized decision making in settings where the revelation principle applies. For a principal agent setting with asymmetric information the article compares centralized mechanisms where the principal retains sole responsibility for contracting and coordinating with delegation mechanisms where a manager is delegated authority to contract with other agents and coordinate production. Delegation entails a control loss but allows decisions to be more sensitive to the manager's private information. The circumstances are identified under which delegation emerges superior to centralized contracting. |
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