A Model of Delegated Project Choice

Authors

  • Mark Armstrong,

    1. Dept. of Economics, University College London, London WC1E 6BT, United Kingdom; mark.armstrong@ucl.ac.uk
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  • John Vickers

    1. All Souls College, University of Oxford, Oxford OX1 4AL, United Kingdom; john.vickers@economics.ox.ac.uk
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    • We are grateful to Daron Acemoglu, V. Bhaskar, Sandro Brusco, Martin Cripps, James Dow, Florian Englmaier, Bengt Holmstrom, Michael Katz, Niko Matouschek, Meg Meyer, Tima Mylovanov, Barry Nalebuff, Eric Rasmusen, David Sappington, Karl Schlag, Aggey Semenov, Joel Sobel, Glen Weyl, Jidong Zhou, and to three referees for comments and discussion. Armstrong gratefully acknowledges the support of the Economic and Social Research Council (U.K.).


Abstract

We present a model in which a principal delegates the choice of project to an agent with different preferences. The principal determines the set of projects from which the agent may choose. The principal can verify the characteristics of the project chosen by the agent, but does not know which other projects were available to the agent. We consider situations where the collection of available projects is exogenous to the agent but uncertain, where the agent must invest effort to discover a project, where the principal can pay the agent to choose a desirable project, and where the principal can adopt more complex schemes than simple permission sets.

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