Delegation and Contracting Hierarchies: An Overview

Delegation is a pervasive phenomenon in firms, procurement contracting, financial and regulatory institutions. Owners frequently delegate management of the firm to top level managers, who in turn delegate management of divisions to middle level managers. In procurement contracting, the purchaser often contracts with a single ‘prime’ contractor, delegating the responsibility of subcontracting with diverse upstream suppliers. Trading intermediaries such as wholesalers and retailers are delegated decisions concerning distribution and pricing of products. Financial intermediaries are delegated authority by depositors to make loans and supervise lenders. Regulated firms are often delegated authority by regulators to select their own production levels and contract with their upstream suppliers. These are but a few instances of how decision-making typically gets dispersed among a large number of agents, instead of being concentrated in one central authority. Those delegated authority may themselves be directly involved in