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Limited Communication and Responsibility Budgeting

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We consider an agency model with three-tier hierarchy, in which the principal cannot observe the manager's and the worker's task environments. Communication is limited in that only the manager can report to the principal about the task environments. The principal decides whether or not to give the manager responsibility for project budgeting. Under responsibility budgeting, the manager receives all of the resources for the project tasks and shares those resources with the worker. Although the manager in such an arrangement has more direct sources of information rent, his rent-seeking incentive becomes weaker. This trade-off determines whether or not larger responsibility for budgeting is optimal. (JEL: D82, D86)
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Document Type: Research Article

Publication date: 01 September 2017

This article was made available online on 09 September 2016 as a Fast Track article with title: "Limited Communication and Responsibility Budgeting".

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  • Founded as Zeitschrift für die gesamte Staatswissenschaft in 1844.

    As one of the oldest journals in the field of political economy, the Journal of Institutional and Theoretical Economics (JITE) deals traditionally with the problems of economics, social policy, and their legal framework. JITE is listed in the Journal of Economic Literature, the Social Science Citation Index, the International Bibliography of the Social Sciences, and COREJ.

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    From 2013 on all accepted articles are published in an Online First version (in their final layout) to make them searchable and citable by their DOI immediately after peer review and acceptance. Once the article is published in an issue of the journal, the Online First version will be removed.

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