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Project Assignment Rights and Incentives for Eliciting Ideas
Anil Arya, Jonathan Glover and Bryan R. Routledge
Vol. 48, No. 7 (Jul., 2002), pp. 886-899
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/822697
Page Count: 14
You can always find the topics here!Topics: Cost allocation, Financial investments, Cost efficiency, Goal setting, Information storage and retrieval systems, Economic investment, Labor economics, Financial management, Universities, Net present value
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In this paper, we study an incentive problem that arises between a principal and two agents because they value a real option differently. The real option in our model is a timing option. The agents have limited capacity to undertake projects, and each agent's capacity can be filled now or later. Because the principal cares about capacity in the aggregate but each agent cares only about his own capacity, the agents assign a higher value to the option to wait. As a result, agents sometimes withhold ideas from the principal. We show that decentralization can be a solution to this problem. Delegating assignment rights to an agent reduces the option value of waiting for the other agent sufficiently that he is willing to reveal his ideas.
Management Science © 2002 INFORMS