•   •   •   •

Download the Paper (293 K, PDF file) - November 1, 2004 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
Organizational theory suggests that authority should lie in the hands of those with information, yet the power to transfer authority is rarely absolute in practice. We investigate the validity and application of this advice in a model of optimal contracting between an uninformed principal and informed agent where the principal's commitment power is imperfect. We show that while full alignment of interests combined with delegation of authority is feasible, it is never optimal. The optimal contract is "bang-bang"---in one region of the state space, full alignment takes place, in the other, no alignment takes place. We then compare these contracts to those in which the principal has full commitment power as well as to several "informal" institutional arrangements.

SUGGESTED CITATION:
Vijay Krishna and John Morgan, "Contracting for Information under Imperfect Commitment" (November 1, 2004). Competition Policy Center. Paper CPC05-051.
http://repositories.cdlib.org/iber/cpc/CPC05-051