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Delegating Multiple Decisions †

Delegating Multiple Decisions † Abstract This paper shows how to extend the heuristic of capping an agent against her bias to delegation problems over multiple decisions. Caps may be exactly optimal when the agent has constant biases, in which case a cap corresponds to a ceiling on the weighted average of actions. More generally caps give approximately first-best payoffs when there are many independent decisions. The shape of the cap translates into economic intuition on how to let an agent trade off increases on one action for decreases on other actions. I discuss applications to political delegation, capital investments, monopoly price regulation, and tariff policy. (JEL D42, D72, D82, F13, L12, L51 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Delegating Multiple Decisions †

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Publisher
American Economic Association
Copyright
Copyright © 2016 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.20130270
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper shows how to extend the heuristic of capping an agent against her bias to delegation problems over multiple decisions. Caps may be exactly optimal when the agent has constant biases, in which case a cap corresponds to a ceiling on the weighted average of actions. More generally caps give approximately first-best payoffs when there are many independent decisions. The shape of the cap translates into economic intuition on how to let an agent trade off increases on one action for decreases on other actions. I discuss applications to political delegation, capital investments, monopoly price regulation, and tariff policy. (JEL D42, D72, D82, F13, L12, L51 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2016

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