Delegation versus Veto in Organizational Games of Strategic Communication

• Published date: 01 December 2007
• DOI: http://doi.org/10.1111/j.1467-9779.2007.00340.x
• Date: 01 December 2007
• Author: ANTHONY M. MARINO

DELEGATION VERSUS VETO IN ORGANIZATIONAL GAMES

OF STRATEGIC COMMUNICATION

ANTHONY M. MARINO

University of Southern California

Abstract

In organizations, principals use decision rules to govern

a more informed agent’s behavior. We compare two such

rules: delegation and veto. Recent work suggests that dele-

gation dominates veto unless the divergence in preferences

between the principal and the agent is so large that infor-

mative communication cannot take place. We show that this

result does not hold in a reasonable model of veto versus del-

egation. In this model, veto dominates delegation for any

feasible divergence in preferences, if it induces the agent

to shut down low quality proposals that he would otherwise

implement and if such projects have sufficient likelihood.

1. Introduction

Public and private organizations use the veto decision rule to alleviate incen-

tive problems arising between a principal and a more informed agent. An

example from the private sector is the case where the agent must obtain the

principal’s approval before going ahead with an investment proposal. In the

public sector, school districts (the agent) in Oregon, New York and other

states are required to subject their spending proposals to the approval of the

voters (the principal). Swiss cantons similarly use mandatory referendums for

Anthony M. Marino, Department of Finance and Business Economics, Marshall

School of Business, University of Southern California, Los Angeles, CA 90089-1427

(amarino@.usc.edu).

Special thanks are extended to Oguzhan Ozbas and Jan Zabojnik for many helpful

discussions and suggestions. Beneficial comments were also received from Robert Gibbons,

Krishna Kumar, John Matsusaka, Michael Raith, Eric Talley, and two anonymous referees.

The author gratefully acknowledges the support provided by the Marshall General Research

Fund.

Received January 3, 2006; Accepted October 13, 2006.

C

2007 Blackwell Publishing, Inc.

Journal of Public Economic Theory, 9 (6), 2007, pp. 979–992.

979