Are Delegation and Incentives Complementary Instruments?

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    Abstract

    It is natural to suppose that delegation and incentives are complementaryboth in the sense that when more decisions are delegated toa lower level of an organizational hierarchy, more use should be madeof incentives at that level, and in the sense that more use of incentivesshould be accompanied by more delegation. This issue is analyzedwithin a Principal-Agent framework in which there are two decisionsto be made: an effort decision which can only be made by the Agent,and some other decision which can be made by either the Principal(i.e. be centralized) or by the Agent (i.e. be delegated). Within thisframework it is shown that delegation and incentives are not necessarilycomplementary instruments; some decisions should be centralized whenincentives are introduced.
    Original languageEnglish
    Place of PublicationKøbenhavn
    PublisherInstitut for Industriøkonomi og Virksomhedsstrategi, Handelshøjskolen i København
    Number of pages21
    DOIs
    Publication statusPublished - Apr 2004

    Keywords

    • Delegation
    • Incentives
    • Complementarity

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