The Delegation of Decision Rights: An Experimental Investigation
50 Pages Posted: 1 Jun 2014 Last revised: 9 Jul 2015
Date Written: July 8, 2015
Abstract
Despite the benefits of delegating decision rights, it is claimed that firms under delegate decision-making authority. However, to date, this claim is untested. This paper explores the choice between information elicitation and delegation. We also examine the effect of this choice on the subordinates’ incentives to gather decision facilitating information. We find that, compared to agency theory predictions, superiors do not delegate as much as they should and subordinates respond by devoting less effort to the acquisition of valuable information. Compared to the case where the decision is delegated, subordinates exert less effort when their information is elicited for both behavioral and economic reasons. This behavior results in superiors earning less profit.
Keywords: Information, Delegation, Experiment, Elicitation
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