On the Costs and Benefits of Delegation in Organizations

We examine the question whether a decision should be delegated to a subordinate and whether this is done efficiently. We illustrate that delegation is useful for several reasons. First, it serves to test agents with unknown ability. Then, it may improve their motivation when carrying out decisions. Moreover, delegation to subordinates may be useful to limit the power of middle managers. Costs of delegation arise due to the risk of having lower quality decisions and because after having made a successful decision a subordinate's power is increased. The latter may lead to inefficient delegation decisions.