Delegation with Strings Attached: Underfunding a Biased Agent

Citation:

Antic, Nemanja, and Matias Iaryczower. “Delegation with Strings Attached: Underfunding a Biased Agent,” Working Paper.
delegation.pdf4.49 MB

Date Published:

01/06/2015

Abstract:

We study optimal contracting between a principal and an agent who can contract on both the content of a policy and its implementation scale. We assume content and scale are not separable, as the value of expanding the scale of implementation increases when the policy is close to a player's preferred policy. In the optimal separating contract, an agent with an upward policy bias can only choose higher policies by reducing the scale of implementation. The solution differs qualitatively from standard quasilinear models and is ex-post inefficient, as the highest policies are too low for both parties and are under-implemented. 

Notes:

Typeset, Princeton University

Last updated on 05/06/2015