Delegation in Three-tier Framework

Working Papers 119 Lehto Eero

This study considers the problem related to the regulation of firms or governmental bureaus, whose services are not offered at market prices. The main emphasis will be in the analysis of the effects of decentralized decision-making. When decision-making is decentralized, the decisions concerning the workers are delagated to bureau managers (agents). The government (the principal) still decides on the level of production and on the size of budget. It is shown that delegation as a rule improves government´s welfare, when the bureau manager possesses private information.