Essays on delegation and social norms

This thesis presents the results of my doctoral studies at Middlesex University London. It contains different papers related to Labour Markets and presents some results on production, delegation and dishonest behaviour. The first study compares how group size interacts with both constrained and un-constrained resource environments, finding that resource limitations diminish production over time and that all the groups learn with experience. The second explores the effects of incentives in dishonest behaviour in both the gain and loss domain finding that contrary to theoretical predictions, subjects do not cheat more when they are facing a loss. The third, studies the distributions derived from different delegation scenarios. We find that the distributions derived from optional delegation are more egalitarian than the ones made under compulsory delegation. Finally, I study gender differences in delegation finding that gender biases only arise in compulsory delegation, and not under endogenous delegation, and at an agent level

Delegation and Performance Pay: Evidence from Industrial Sales Forces

Delegation is a central feature of organizational design that theory suggests should be aligned with the intensity of incentives in performance pay schemes. We explore a specific form of delegation, namely price delegation, whereby firms allow sales people to offer a maximum discount from the list price to their customers. We first develop a model of the price delegation decision based on the notions of information acquisition and constrained delegation that match the context of industrial sales. Using data on individual sales people, specifically one sales person per firm from a survey of 261 firms, we show that, consistent with predictions from our model, sales people are given more pricing authority when they are more experienced and more capable, when there is less environmental uncertainty, and to a lesser extent, when customer valuations for the product are more variable. Finally, also consistent with the predictions of our model, we show that price delegation is increasing in the intensity of incentives given to the agent.http://deepblue.lib.umich.edu/bitstream/2027.42/98981/1/1190_Ghosh.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/98981/4/1190_LaFontaine_March2015.pdfDescription of 1190_LaFontaine_March2015.pdf : March 2015 Revisio

Veto-Based Delegation

In a principal-agent model with hidden information and no monetary transfers, I establish the Veto-Power Principle: any incentive-compatible outcome can be implemented through veto-based delegation with an endogenously chosen default decision. This result demonstrates the exact nature of commitment powers required by the principal: (1) to design the default outcome and (2) to ensure that she has almost no formal control over the agent's decisions

Relative performance evaluation contracts and asset market equilibrium

We analyse the equilibrium consequences of performance-based contracts for fund managers. Managerial remuneration is tied to a fund's absolute and relative performance. Investors choose whether or not to delegate their investment to better-informed fund managers; if they delegate they choose the optimal contract subject to the fund manager's participation constraint. We find that the impact of relative performance evaluation on the equilibrium equity premium and on portfolio herding critically depends on whether the participation constraint is binding. Simple numerical examples suggest that the increased importance of delegation and relative performance evaluation may lower the equity premium

Delegation and discretion

There are many situations in which a principal delegates decisions to a better-informed agent but does not choose to give full discretion. This paper discusses one reason why this might be desirable: the agent may have tastes that differ from those of the principal. Limiting the agent's discretion has the advantage that an untrustworthy agent is constrained from following policies that are disliked by the principal, but the disadvantage that trustworthy agents are then not permitted to carry out some desirable policies. It is shown that a greater risk of the agent being untrustworthy will lead to her being offered less discretion over policy. Applications of the model involve judicial sentencing policy, monetary policy, and pricing policy in a regulated industry.Principal-Agent Problem; Delegation; Discretion; Mandatory Sentences; Monetary Policy; Regulation.

Secure communication in IP-based wireless sensor network via a trusted gateway

As the IP-integration of wireless sensor networks enables end-to-end interactions, solutions to appropriately secure these interactions with hosts on the Internet are necessary. At the same time, burdening wireless sensors with heavy security protocols should be avoided. While Datagram TLS (DTLS) strikes a good balance between these requirements, it entails a high cost for setting up communication sessions. Furthermore, not all types of communication have the same security requirements: e.g. some interactions might only require authorization and do not need confidentiality. In this paper we propose and evaluate an approach that relies on a trusted gateway to mitigate the high cost of the DTLS handshake in the WSN and to provide the flexibility necessary to support a variety of security requirements. The evaluation shows that our approach leads to considerable energy savings and latency reduction when compared to a standard DTLS use case, while requiring no changes to the end hosts themselves

Performance Measurement in Multi-Task Agencies

This paper analyzes a multi-task agency model with a risk-neutral and financially constrained agent. The agent's performance evaluation is thereby incongruent, i.e. it does not perfectly reflect the relative contribution of the agent's multi-dimensional effort to firm's profit. This paper elaborates on the improvement of the agent's performance evaluation through the costly acquisition of additional performance measures aimed at inducing the agent to implement a more efficient effort allocation across tasks. It contrasts two alternatives for the principal: (i) to centrally invest in the information acquisition; or (ii), to delegate this task to a supervisor. This paper demonstrates that the principal generally favors delegation for a sufficiently incongruent measurement of the agent's performance, and a centralized investment, otherwise.Multi-task agencies; performance measurement; distortion; congruity; limited liability; incentives

Veto-Based Delegation

In a principal-agent model with hidden information and no monetary transfers, I establish the Veto-Power Principle: any incentive-compatible outcome can be implemented through veto-based delegation with an endogenously chosen default decision. This result demonstrates the exact nature of commitment powers required by the principal: (1) to design the default outcome and (2) to ensure that she has almost no formal control over the agent's decisions.veto power; asymmetric information; principal-agent relationship; no monetary transfers.