Risk, Delegation, and Project Scope

23 Pages Posted: 22 Nov 2007

See all articles by Andreas Roider

Andreas Roider

University of Regensburg - Department of Economics and Econometrics; IZA Institute of Labor Economics

Date Written: October 2007

Abstract

This paper studies a partial-contracting model where an agent may provide effort to increase a project's scope before some later decisions have to be taken. Consistent with existing empirical evidence, we find a positive relationship between exogenous risk and delegation. That is, we show that only if exogenous risk is sufficiently large, the risk-neutral principal may prefer to delegate authority over decisions to the risk-averse agent. Intuitively, for incentive reasons, the principal may optimally want to allow the agent to reduce his risk exposure. Nevertheless, even endogenous risk may be higher when the risk-averse agent has control.

Keywords: delegation, authority, risk, partial contracting

JEL Classification: D86, D21, D23, G34, L14

Suggested Citation

Roider, Andreas, Risk, Delegation, and Project Scope (October 2007). IZA Discussion Paper No. 3117, Available at SSRN: https://ssrn.com/abstract=1031706

Andreas Roider (Contact Author)

University of Regensburg - Department of Economics and Econometrics ( email )

Universitaetsstrasse 31
D-93040 Regensburg
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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