Disagreement and informal delegation in organizations

Abstract

To investigate delegation decisions within organizations, we develop a principal-agent model in which the principal can only informally delegate authority to the agent and the parties openly disagree with each other in the sense of differing prior beliefs about the optimal course of action. Our main analysis shows that the degree of disagreement determines what kind of delegation policy the principal can commit to and this, in turn, alters the agent's effort for information acquisition. In an extension, we consider the principal's incentives to provide the agent with training, which reduces the cost of acquiring information. The analysis reveals that training provision is higher under delegation and that training facilitates delegation. We use a cross section of matched employer-employee data to examine the extent to which the empirical implications of this extension are consistent with data.

Determinants of Delegation: Evidence from British Establishment Data

“…Our empirical analysis is largely motivated by Ekinci and Theodoropoulos (2021). To study delegation decisions, Ekinci and Theodoropoulos enrich the standard principal-agent model by incorporating differences of opinion and informal delegation.…”

“…In a part of their analysis, Ekinci and Theodoropoulos (2021) allow the principal to make a costly investment that reduces the agent's cost of information acquisition. The authors argue that the principal's investment can be interpreted as a form of firm-provided training and then show that delegation and training are positively related.…”

“…This paper uses a cross section of matched employer-employee data from Britain to examine the determinants of delegation. Using the existing theories, particularly the analysis in Ekinci and Theodoropoulos (2021), we formulate three hypotheses that we take to data. Our first hypothesis focuses on the firm's incentives to facilitate information acquisition by the worker and it predicts that firm-provided training and delegation are positively related.…”

“…Intuitively, when the firm delegates authority to the employee, it has an incentive to facilitate information acquisition prior to the decision making. Thus, under the assumption that firm-provided training induces the employee to exert higher effort for information acquisition, these incentives yield a positive relationship between delegation and training (Bilanakos et al (2018) and Ekinci and Theodoropoulos (2021)). Next, we turn to the variables that concern the value of information in decision-making.…”