Optimal delegation with self-interested agents and information acquisition

Shungo Omiya, Yasunari Tamada, Tsung Sheng Tsai

Research output: Contribution to journalArticle

Abstract

A team composed of a principal and an agent needs to choose a project to run, while they may have different preferences regarding the project. The agent has various types of bias in terms of project selection, and he can make an effort in acquiring the information regarding the promise of projects. The principal can either keep the decision-making authority of choosing which project to run, or delegate it to the agent. We find that the optimal effort level under the principal's authority is at its highest when the agent is the most biased, while under the agent's authority it is also at its highest when the agent has an intermediate bias. Therefore, the principal should keep the authority and communicate with the agent when the agent is relatively biased, and delegate the authority when the agent has an intermediate bias. However, from the team's point of view where both players’ payoffs are taken into account, the principal may delegate too much authority to a relatively unbiased agent, and too little authority to a relatively biased agent.

Original languageEnglish
Pages (from-to)54-71
Number of pages18
JournalJournal of Economic Behavior and Organization
Volume137
DOIs
Publication statusPublished - 2017 May 1

Keywords

  • Agent's bias
  • Information acquisition
  • Optimal delegation

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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