Seminarios

Abstract: We study a dynamic relationship in which a principal chooses the timing of reorganizations but delegates implementation to an agent. The implementation process requires front-loaded effort and time to yield results. There is no asymmetric information, but the agent's effort is not verifiable. The principal, moreover, cannot commit to a reorganization policy in advance. The equilibrium is unique and inefficient. Furthermore, compared to the first-best, the organization waits too little for new reorganizations to yield results, but retains the status quo longer when successful reorganizations lead to profitable new business. We discuss how these results might shed light on two seemingly contradictory perceptions commonly held about the frequency of reorganizations.