The Dynamics of Delegated Decision Making

Oct 2013 | 678

Authors: Kevin Roberts

This paper investigates the behaviour of bodies or organizations, operating in a stochastic environment, where there is a delegated decision maker.  A crucial decision is when to delegate to another decision maker.  The problem may be intrapersonal, as occurs when there are endogenously changing tastes, or interpersonal where delegation is intuitionally necessay or where decison making is 'as if' there is delegation.  This is possible if decision making is through voting - an existence theorem is given.  Decisions lead to shifts in control involving option losses; forward-looking recognition of this leads to the endogenous creation of hysteresis.  The fact that the behaviour of other agents leads to hysteresis makes it optimal for any single agent to introduce more hysteresis.  Organisations or bodies with many possible decision makers operate, in subsets of the state space, in one of two regimes, one where hysteresis is small and the other where hysteresis is large.

JEL Codes: D1, D2, D7

Keywords: Dynamic Voting, collective decisions, delegation, endogenous preferences, hysteresis

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