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Rosa Loveira
''Delegated versus Nondelegated Decision Making''
( 2012, Vol. 32 No.4 )
This paper analyzes the value of menus of contracts in a context of delegated expertise with nondelegated decision making. Firms delegate to managers the task of obtaining information about strategic decisions, and they choose whether or not to delegate the actual decision-making process to these managers. A delegated decision-making process involves offering the expert a contract that stipulates different payoffs contingent on verifiable results, whereas a nondelegated decision-making process involves a menu of contracts from which the expert can choose. We find that menus of contracts are valuable because they induce efficient decision making at lower cost.
Keywords: Delegated Expertise, Incentive Contracts
JEL: D8 - Information, Knowledge, and Uncertainty: General
M2 - Business Economics: General
Manuscript Received : Jul 27 2012 Manuscript Accepted : Oct 05 2012

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