Resource title

Delegation of Authority as an Optimal (In)complete Contract

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Resource description

In a holdup framework, I provide conditions under which simple delegation of authority is a solution to the complete-contracting problem even though ex-post actions are ex-ante contractible, and unlimited transfer payments are feasible. In particular, delegation turns out to be optimal if the payoff functions of the parties satisfy certain separability and symmetry conditions, and the parties face an underinvestment problem. This result is extended to the case of potential overinvestment and to multi-dimensional effort provision. Besides providing a complete-contracting rationale for delegation, the findings contribute to the foundation of incomplete contracts and the property-rights theory of the firm.

Resource author

Andreas Roider

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22837

Resource license

Adapt according to the presented license agreement and reference the original author.