Contracting for Information Under Imperfect Commitment
By V. Krishna, John Morgan. 2004
155 citations recorded by the source corpus.
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.
Subfields: Economics and Econometrics, Management Science and Operations Research
View Paper: https://www.semanticscholar.org/paper/99fcae6e31db985cb2f112a40662e7946f915f41
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In Economics and Econometrics
In Management Science and Operations Research
Citations in the corpus
- Control of Corporate Decisions: Shareholders vs. Management (2010, background): “With respect to contracts contingent on reports, see Krishna and Morgan (2008).”