Working Paper: CEPR ID: DP4572
Authors: Denis Gromb; David Martimort
Abstract: This Paper proposes a theory of the optimal organization of delegated expertise. For incentive purposes, a principal should reward an expert when their recommendation is confirmed either by the facts or by other experts? recommendations. With a single expert, we show that the agency costs of delegated expertise exhibit diseconomies of scale. Possible organizational responses to this problem include basing decisions on a less than optimal amount of information, and relying on multiple experts. We analyse the source of gains from having multiple experts in different contracting environments corresponding to different nexi of collusion between the principal and/or the experts.
Keywords: collusion; expertise; organization
JEL Codes: D80
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| agency costs of delegated expertise exhibit diseconomies of scale (D82) | agency costs associated with a single expert gathering information (D82) |
| relying on two signals from one expert (D80) | agency costs (G34) |
| using two experts (C90) | agency costs (G34) |
| collusion between principal and experts (D73) | decision-making (D70) |
| report-based contracts (L14) | agency costs (G34) |
| optimal organization of expertise (L23) | contracting environment and potential for collusion (L12) |