Organization of delegated expertise

Finance

IFA Working Paper

2004

This paper proposes a theory of the optimal organization of expertise. We develop a Principle of Incentives for Expertise: an expert is rewarded if his recommendation is confirmed either by the facts or by other experts' recommendations. Building on this Principle, we show that agency costs of delegated expertise exhibit diseconomies of scale. Possible organiszational responses to this problem include basing decisions of a less than optimal amount of information, and relying on multiple experts.

Institute of Finance and Accounting

FIN 403

IFA Working Paper

No