Delegating the decision-making authority to terminate a sequential project

Yasunari Tamada, Tsung Sheng Tsai

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This paper considers a two-stage project which requires investments to be made by different agents, who have career concerns, at each stage. The principal needs to decide whether the project should be continued or not after the first-stage outcome is realized. The principal can either keep the decision-making authority regarding the termination policy, or else delegate it to one of the agents. With career concerns, the first-stage agent always wants to continue the project, in which case the sunk cost fallacy occurs. On the contrary, the second-stage agent may prefer to stop it voluntarily to protect his reputation. Therefore, when the career concerns are strong, the principal should delegate the authority to the second-stage agent if an early termination of the project is also the best policy for the principal; while if the career concerns are weak, the principal should keep the authority.

Original languageEnglish
Pages (from-to)178-194
Number of pages17
JournalJournal of Economic Behavior and Organization
Volume99
DOIs
Publication statusPublished - 2014 Mar

Fingerprint

Authority
Decision making
Career concerns
Termination
Sunk costs

Keywords

  • Career concerns
  • Delegation
  • Sequential investment
  • Sunk cost fallacy

ASJC Scopus subject areas

  • Organizational Behavior and Human Resource Management
  • Economics and Econometrics

Cite this

Delegating the decision-making authority to terminate a sequential project. / Tamada, Yasunari; Tsai, Tsung Sheng.

In: Journal of Economic Behavior and Organization, Vol. 99, 03.2014, p. 178-194.

Research output: Contribution to journalArticle

@article{5f50910c7e1d471eafa07b7213e7f0ba,
title = "Delegating the decision-making authority to terminate a sequential project",
abstract = "This paper considers a two-stage project which requires investments to be made by different agents, who have career concerns, at each stage. The principal needs to decide whether the project should be continued or not after the first-stage outcome is realized. The principal can either keep the decision-making authority regarding the termination policy, or else delegate it to one of the agents. With career concerns, the first-stage agent always wants to continue the project, in which case the sunk cost fallacy occurs. On the contrary, the second-stage agent may prefer to stop it voluntarily to protect his reputation. Therefore, when the career concerns are strong, the principal should delegate the authority to the second-stage agent if an early termination of the project is also the best policy for the principal; while if the career concerns are weak, the principal should keep the authority.",
keywords = "Career concerns, Delegation, Sequential investment, Sunk cost fallacy",
author = "Yasunari Tamada and Tsai, {Tsung Sheng}",
year = "2014",
month = "3",
doi = "10.1016/j.jebo.2014.01.007",
language = "English",
volume = "99",
pages = "178--194",
journal = "Journal of Economic Behavior and Organization",
issn = "0167-2681",
publisher = "Elsevier",

}

TY - JOUR

T1 - Delegating the decision-making authority to terminate a sequential project

AU - Tamada, Yasunari

AU - Tsai, Tsung Sheng

PY - 2014/3

Y1 - 2014/3

N2 - This paper considers a two-stage project which requires investments to be made by different agents, who have career concerns, at each stage. The principal needs to decide whether the project should be continued or not after the first-stage outcome is realized. The principal can either keep the decision-making authority regarding the termination policy, or else delegate it to one of the agents. With career concerns, the first-stage agent always wants to continue the project, in which case the sunk cost fallacy occurs. On the contrary, the second-stage agent may prefer to stop it voluntarily to protect his reputation. Therefore, when the career concerns are strong, the principal should delegate the authority to the second-stage agent if an early termination of the project is also the best policy for the principal; while if the career concerns are weak, the principal should keep the authority.

AB - This paper considers a two-stage project which requires investments to be made by different agents, who have career concerns, at each stage. The principal needs to decide whether the project should be continued or not after the first-stage outcome is realized. The principal can either keep the decision-making authority regarding the termination policy, or else delegate it to one of the agents. With career concerns, the first-stage agent always wants to continue the project, in which case the sunk cost fallacy occurs. On the contrary, the second-stage agent may prefer to stop it voluntarily to protect his reputation. Therefore, when the career concerns are strong, the principal should delegate the authority to the second-stage agent if an early termination of the project is also the best policy for the principal; while if the career concerns are weak, the principal should keep the authority.

KW - Career concerns

KW - Delegation

KW - Sequential investment

KW - Sunk cost fallacy

UR - http://www.scopus.com/inward/record.url?scp=84893945271&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84893945271&partnerID=8YFLogxK

U2 - 10.1016/j.jebo.2014.01.007

DO - 10.1016/j.jebo.2014.01.007

M3 - Article

AN - SCOPUS:84893945271

VL - 99

SP - 178

EP - 194

JO - Journal of Economic Behavior and Organization

JF - Journal of Economic Behavior and Organization

SN - 0167-2681

ER -