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  3. American Economic Journal: Microeconomics
  4. November 2016
  5. Delegating Multiple Decisions

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Delegating Multiple Decisions

  • Alex Frankel
American Economic Journal: Microeconomics
vol. 8, no. 4, November 2016
(pp. 16–53)
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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.

Citation

Frankel, Alex. 2016. "Delegating Multiple Decisions." American Economic Journal: Microeconomics, 8 (4): 16–53. DOI: 10.1257/mic.20130270

Additional Materials

JEL Classification

  • D42 Market Structure, Pricing, and Design: Monopoly
  • D72 Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior
  • D82 Asymmetric and Private Information; Mechanism Design
  • F13 Trade Policy; International Trade Organizations
  • L12 Monopoly; Monopolization Strategies
  • L51 Economics of Regulation
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