Optimal delegation implications of central bank transparency

The interrelationship between monetary regime design and central bank transparency is examined. We find optimal delegation requires the central bank be either: ‘representative’, not choosing to publicly reveal its private information; or ‘ultraconservative’, deciding to be fully transparent.     

Credible delegation

We show that the vertical delegation of decision-making authority to agent firms can act as a credible strategic commitment even when contracts are unobservable (or renegotiable) if and only if multilateral delegation is combined with decentralized ownership of the agent firms. In this case, the possibility of renegotiation of other agents’ contracts constrains the set of contracts acceptable to each agent. Delegation may induce more or less aggressive behavior, depending on the nature of within-structure competition among the agent firms. Thus, delegation may be a valuable, credible strategic commitment mechanism when strategies are either substitutes or complements.     

Message-contingent delegation

The paper studies the role of delegation and authority in a principal-agent relation in which a non-contractible action has to be taken. The agent has private information relevant for the principal, but has policy preferences different from the principal. Consequently, an information revelation problem arises. I consider a partially incomplete contracting environment with contractibility of messages and decision rights and with transferable utility. I contribute to the literature by allowing for message-contingent delegation and by deriving the optimal partially incomplete contract. It is shown that message-contingent delegation creates incentives for information revelation and may outperform unconditional authority and unconditional delegation.     

Veto-based delegation

In a principal-agent model with hidden information and no monetary transfers, I establish the veto-power principle: the principal can implement an optimal outcome through veto-based delegation with a properly chosen default decision. This result demonstrates the exact nature of commitment powers required by the principal: to design the default outcome and to ensure that she has almost no formal control over the agent's decisions.     

How delegation improves commitment

McCallum (1995, American Economic Review Papers and Proceedings 85 (2), 207-211) conjectures that delegation merely relocates the commitment problem but does not solve it. This holds if optimal ex-ante policies do not change if additional information becomes available. However, with a flexibility-credibility trade-off delegation improves credibility.     

A Blotto game with multi-dimensional incomplete information

We examine a multi-dimensional incomplete information Colonel Blotto game in which each player’s n-tuple of battlefield valuations is drawn from a common n-variate joint distribution function that is uniform on the non-negative orthant of the surface of a sphere.     

Optimal use of forecasts in economic policy decisions: An empirical test

A criterion for optimal use of forecasts of exogenous variables in a linear policy model with quadratic preferences is given, based on Johansen (1972). By calculating regressions of observed values with respect to raw forecast values used in the observation period, equations are established which can be used to transform raw forecasts into ‘certainty equivalents’. The method is applied to data from national budgeting and corresponding national accounts in Norway 1948–-1971. Especially the forecasts for the volume of exports, but also for import prices, could be considerably improved, for policy purposes in the context of the model of the type mentioned, by the transformation described. Some of the forecasts, when optimally transformed, should be permitted to fluctuate more strongly and thereby influence policy more strongly. Some tentative results for Sweden and the Netherlands are briefly mentioned and compared with the evidence for Norway.     

Environmental taxes and strategic delegation

This paper analyzes a managerial delegation model in which the government chooses an environmental tax to control environmental damage. By giving the managers of firms an incentive scheme based on a linear combination of profit and sales revenue, we show that firm owners have to pay a higher environmental tax and both environmental damage and social welfare increase compared to the profit-maximization case. Financial support from UPV (Subvención a grupos, 2001), UPV (HB-8238/2000) and MEC (BEC 2000-0301) is gratefully acknowledged. We would like to thank A. Saracho and two referees for helpful comments. The usual disclaimer applies.     

Portfolio delegation under short-selling constraints

Summary. In this paper we study delegated portfolio management when the manager’s ability to short-sell is restricted. Contrary to previous results, we show that under moral hazard, linear performance-adjusted contracts do provide portfolio managers with incentives to gather information. We find that the risk-averse manager’s effort is an increasing function of her share in the portfolio’s return. This result affects the risk-averse investor’s choice of contracts. Unlike previous results, the purely risk-sharing contract is now shown to be suboptimal. Using numerical methods we show that under the optimal linear contract, the manager’s share in the portfolio return is higher than what it is under a purely risk sharing contract. Additionally, this deviation is shown to be: (i) increasing in the manager’s risk aversion and (ii) larger for tighter short-selling restrictions. As the constraint is relaxed the deviation converges to zero.Received: 25 July 2002, Revised: 12 December 2004, JEL Classification Numbers: D81, D82, J33.Juan-Pedro Gómez: Correspondence toAn earlier version of the paper was circulated under the title “Providing Managerial Incentives: Do Benchmarks Matter?” We are grateful to an anonymous referee whose comments helped to improve the paper. We also thank comments by Viral Acharya, Alexei Goriaev, Ernst Maug, Kristian Rydqvist, Neil Stoughton, Rangarajan Sundaram, Fernando Zapatero and seminar participants at the 1999 SED meetings in Sardinia, the 1999 Workshop in Mutual Fund Performance at EIASM, Brussels, the 2000 EFA meetings in London, the Bank of Norway, the Stockholm Schools of Economics, the Norwegian School of Management and the 2001 WFA meetings in Tucson. Sharma gratefully acknowledges financial support from the Asociacion Mexicana de Cultura.     

Location choice with delegation: Bertrand vs. Cournot competition

The conventional wisdom indicates that firms' optimal locations are sensitive to the modes of product-market competition, leading to a difficulty for firms to make concrete location decisions. This difficulty is especially crucial for the high entry-cost firms. The paper develops an uncovered-market model à la Economides (1984) to explore this sensitivity by taking into account a delegation game. It shows that firms' location configurations remain unchanged regardless of the modes of product-market competition as the owners offer the managers a contract with a relative-performance incentive scheme. Moreover, the paper shows that, by introducing a delegation game, the competition between managers under Bertrand competition is mitigated such that the managers have no incentive to choose price undercutting as they locate themselves far enough away from each other.     

Sequential decisions with tests

We consider a principal-agent problem where the principal wishes to be endorsed by a sequence of agents, but cannot truthfully reveal type. In the standard “herding” model, the agents learn from each other's decisions, which can lead to cascades on a given decision when later agents' private information is swamped. We augment the standard model to allow the principal to subject herself to a test designed to provide public information about her type. She must decide how tough a test to attempt from a continuum of test types, which involves trading off the higher probability of passing an easier test against the greater impact from passing a tougher test. We find that the principal will always choose to be tested, and will prefer a tough test to a neutral or easy one.     

Strategic delegation and voting rules

The selection of political representatives depends on the political system. Principals, such as voters or districts, may benefit by strategically electing representatives different from themselves. While a status-quo biased delegate may be a better negotiator, an enthusiastic representative has a better chance of being included in the majority coalition. A larger majority requirement leads to “conservative” delegation and hence a status quo bias; a poor minority protection does the opposite. Through strategic delegation, the political system also determines whether centralization or decentralization is beneficial.     

Strategic delegation under quality competition

This paper examines strategic manipulations of incentive contracts in a model where firms compete in quality as well as in price. Compensation schemes for managers are based on a linear combination of profits and sales. For a given level of quality, a firm desires to reduce the manager's compensation when product sales increase; this serves as the firm's commitment to raise prices. Nevertheless, in general, a manager has a stronger incentive to produce goods of higher quality if he is compensated according to sales. Therefore, a compensation scheme that penalizes a manager when sales increase may result in products that are inferior to those of its rival. We show that, depending on the nature of quality, a positive weight on sales may be desirable when firms compete in quality and price. Welfare implications are also explored.     

International delegation and state disaggregation

Following Voigt and Salzberger (Kyklos 55:281–310, 2002) this paper considers the tradeoff between international and domestic delegation devices, and argues that the two are largely complements rather than substitutes. It then explores the domestic separation of powers as an explanatory factor in understanding different levels of international delegation across states. It argues that the domestic separation of powers is a driving factor in propensity to delegate, and provides some empirical evidence in this regard. Federal states and those with bicameral legislatures are more likely to sign treaties and join international organizations. Presidential systems, however, are no more likely to do so than parliamentary ones.     

一个地方队的"汽车障碍赛"

2005年8月10日，媒体的一则消息让重庆力帆集团董事长尹明善不得安宁。消息说，重庆力帆汽车再次落榜发改委公布的车辆生产企业及产品（第105批）名录。一石激起千层浪，力帆众多经销商打来电话询问，尹气不打一处来，干枯的手指戳的桌子咔咔作响：“力帆的汽车项目还在审核过程当中，就像高考还没放榜，何来落榜之说？”支吾了约摸半分钟，尹作出结论说：“这，这叫作用词不当!”     

Strategic delegation in asymmetric tax competition

This study examines asymmetric tax competition under representative democracy systems. The findings show that the degree of asymmetry between countries affects the result of elections in each country, where the citizens select a policy‐maker to set a tax rate for the country. In particular, under certain conditions, a decisive voter in the election can select a citizen whose share of the country's capital is higher than the decisive voter's own share.     

Strategic managerial delegation and cross-border mergers

The purpose of this paper is to clarify the relationship between the market structure in equilibrium and the most preferred structure with respect to each country’s social welfare and/or total social welfare, when all existing firms can freely merge with each other in an international oligopoly under the segmented market assumption in three cases: the case wherein all the firms are entrepreneurial and the cases wherein they use two different types of managerial delegation contracts. We focus our attention on the coincidence/non-coincidence between the equilibrium market structure (EMS) and the most socially preferred structure with respect to each country’s social welfare and/or total social welfare, as each firm’s production efficiency varies. When each firm’s production efficiency is relatively low, in all the three cases, the EMS coincides with the most socially preferred structure with respect to each country’s social welfare and total social welfare in a large area of the physical trade cost. On the other hand, when each firm’s production efficiency is relatively high, in the cases wherein they use the two different types of managerial delegation contracts, there exists an area of each firm’s production efficiency such that the EMS does not coincide with the most socially preferred structure with respect to each country’s social welfare and total social welfare. Therefore, as each firm’s organizational structure proceeds from entrepreneurial to managerial delegation, a more active merger policy is needed with respect to each country’s social welfare and total social welfare.     

Managerial delegation and partial privatization in general equilibrium with sector-specific unemployment

This paper explores the effects of managerial delegation in a general-equilibrium, oligopolistic competition model with sector-specific unemployment. It specifically examines the effects of managerial delegation on outputs, factor returns and the urban unemployment ratio. It is found that if the managerial firm is less profit-oriented, managerial delegation can lead to an increase in the urban output, a decrease in the rural output, an increase in the capital rental and a decrease in the rural wage. In particular, it worsens the urban unemployment ratio.     

Sequential decisions with several agents

Summary. We consider k agents who have different subjective probabilities and are utility maximizers. A planner, who knows the beliefs of the agents, maximizes the social expected utility, which is increasing and symmetric in the utilities of the agents. She does that by optimally stopping the flow of information released to the agents. The explicit form of the optimal stopping time is given. Received: October 23, 1995; revised version: June 25, 1997     

Collective decisions with interdependent valuations

Many collective decision problems have in common that individuals’ desired outcomes are correlated but not identical. This paper studies collective decisions with private information about desired policies. Each agent holds private information which mainly concerns his own bliss point, but private information also affects all other agents. We concentrate on two specific mechanism, the median and mean mechanisms establish the existence of symmetric Bayesian Nash equilibria of the corresponding games and compare the performance of the mechanisms for different degrees of interdependencies. Applications of our framework include the provision of public goods and the design of decision processes in international organizations.