Optimal delegation

Ricardo Alonso*, Niko Matouschek

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

139 Scopus citations

Abstract

We analyse the design of decision rules by a principal who faces an informed but biased agent and who is unable to commit to contingent transfers. The contracting problem reduces to a delegation problem in which the principal commits to a set of decisions from which the agent chooses his preferred one. We characterize the optimal delegation set and perform comparative statics on the principal's willingness to delegate and the agent's discretion. We also provide conditions for interval delegation to be optimal and show that they are satisfied when the agent's preferences are sufficiently aligned. Finally, we apply our results to the regulation of a privately informed monopolist and to the design of legislatives rules.

Original languageEnglish (US)
Pages (from-to)259-293
Number of pages35
JournalReview of Economic Studies
Volume75
Issue number1
DOIs
StatePublished - Jan 2008

ASJC Scopus subject areas

  • Economics and Econometrics

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