This paper analyses the relation between authority and incentives. It extends
the standard principal-agent model by a project selection stage in which the
prin- cipal can either delegate the choice of project to the agent or keep the
authority. The agent's subsequent choice of effort depends both on monetary
incentives and the selected project. We find that the consideration of effort
incentives makes the principal less likely to delegate the authority over
projects to the agent. In fact, if the agent is protected by limited
liability, delegation is never optimal.