Exit Options and the Allocation of Authority

Bester, Helmut und Krähmer, Daniel (13. März 2013): Exit Options and the Allocation of Authority. SFB/TR 15 Discussion Paper No. 401

Abstract

We analyze the optimal allocation of authority in an organization whose members have conflicting preferences. One party has decision-relevant private information, and the party who obtains authority decides in a self-interested way. As a novel element in the literature on decision rights, we consider exit option contracts: the party without decision rights is entitled to prematurely terminate the relation after the other party's choice. We show that under such a contract it is always optimal to assign authority to the informed and not to the uninformed party, irrespective of the parties' conflict of interest. Indeed, the first-best efficient solution can be obtained by such a contract.

• Dokumententyp: Paper
• Publikationsform: Preprint
• Keywords: Authority, decision rights, exit options, incomplete contracts, asymmetric information
• Fakultät: Sonderforschungsbereiche > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems ; Sonderforschungsbereiche > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A1 - Allokationsmechanismen in Organisationen und Märkten ; Sonderforschungsbereiche > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A5 - Unvollständige Vertragsbeziehungen und die Gestaltung von Residualrechten
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: D23, D82, D86
• Sprache: Englisch