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Delegation of Authority as an Optimal (In)Complete Contract

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This paper contributes to the literature on the foundations of incomplete contracts. In a holdup framework, we provide two sets of conditions under which simple delegation of authority is the solution to the complete-contracting problem. In cases where overinvestment can be ruled out, delegation is optimal if the payoffs of the parties satisfy certain separability conditions. If overinvestment might be an issue, delegation (possibly with restricted competencies) is optimal if additionally some continuity requirements are met. The paper also contributes to the literature on delegation, where such replication results have previously been derived in settings with asymmetric information.
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Document Type: Research Article

Publication date: 01 September 2006

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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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