Working Paper BETA #2022-14

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Title : The failure of the delegation principle in a principal-agent model with transfers

Author(s) : Mehdi Ayouni, Franck Bien, Thomas Lanzi

Abstract : In a principal-agent model with monetary transfers, we show that the delegation principle always fails even if preferences are perfectly aligned. This result holds if (i) an action that is payoff-relevant for both the principal and the agent has to be taken even if the agent rejects the proposed contract and (ii) the principal can contractually extract surplus from the agent.

Key-words : Contract; Delegation; Information; Transfers

JEL Classification : D23; D82