Efficient Delegation by an Informed Principal |
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Authors: | Eric W. Bond Thomas A. Gresik |
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Affiliation: | 1. Department of Economics Vanderbilt University VU Station B #351819 2301 Vanderbilt Place Nashville, TN 37235‐1819 eric.w.bond@vanderbilt.edu;2. Department of Economics University of Notre Dame Notre Dame, IN 46556 tgresik@nd.edu |
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Abstract: | Motivated by examples from the automobile industry, insurance, retailing, and multinational strategy, we study an organizational structure we refer to as "partial delegation." In a bargaining problem between an informed party and an uninformed party, partial delegation involves the informed party delegating bargaining to an agent while retaining control of its private information. We show that partial delegation enables the informed party to earn information rents without creating quantity distortions. First‐best quantities are traded in equilibrium. We argue that partial delegation allows an informed party to implement efficient trade with outside parties by endogenously improving its bargaining power. |
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