Working Paper: CEPR ID: DP5289
Authors: Ricardo Alonso; Niko Matouschek
Abstract: We analyse the optimal delegation of decision rights by a uninformed principal to an informed but biased agent. When the principal cannot use message-contingent transfers, she offers the agent a set of decisions from which he can choose his preferred one. We fully characterize the optimal delegation set for general distributions of the state space and preferences with arbitrary continuous state-dependent biases. We also provide necessary and sufficient conditions for particular delegation sets to be optimal. Finally, we show that the optimal delegation set takes the form of a single interval if the agent's preferences are sufficiently similar to the principal's.
Keywords: decision rights; delegation; mechanism design
JEL Codes: D82; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimal delegation set (D72) | principal's expected utility (D81) |
| agency costs of biased decision-making + benefits of utilizing agent's information (D82) | optimal delegation set (D72) |
| similar preferences of agent to principal (D01) | interval delegation is optimal (H21) |
| adding decisions to delegation set (D70) | increased expected utility for principal (G40) |
| agent's effective backward bias is strictly concave (D91) | principal benefits from increasing agent's discretion (D80) |
| agent's preferences align closely with principal's (D82) | principal benefits from increasing agent's discretion (D80) |