Exit Options and the Allocation of Authority

Arbeitspapier

We analyze the optimal allocation of authority in an organization whose members have conflicting preferences. One party has decision-relevant private information, and the party who obtains authority decides in a self-interested way. As a novel element in the literature on decision rights, we consider exit option contracts: the party without decision rights is entitled to prematurely terminate the relation after the other party's choice. We show that under such a contract it is always optimal to assign authority to the informed and not to the uninformed party, irrespective of the parties' conflict of interest. Indeed, the first-best efficient solution can be obtained by such a contract.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB/TR 15 Discussion Paper ; No. 401

Classification and Topics

• Classification: Wirtschaft ; Organizational Behavior; Transaction Costs; Property Rights ; Asymmetric and Private Information; Mechanism Design ; Economics of Contract: Theory
• Subject: Authority ; decision rights ; exit options ; incomplete contracts ; asymmetric information

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bester, Helmut ; Krähmer, Daniel
• Event: Veröffentlichung
• (who): Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)
• (where): München
• (when): 2013

Further information

• DOI: doi:10.5282/ubm/epub.15342
• Handle: http://hdl.handle.net/10419/93927
• URN: urn:nbn:de:bvb:19-epub-15342-9
• Last update: 10.03.2025, 11:43 AM CET