Working Paper: CEPR ID: DP6357
Authors: Hans Peter Grüner
Abstract: Should privately informed agents with diverging interests act independently or should they commit to a mechanism? This paper analyzes different communication and decision protocols when communication involves delay. It studies under which conditions agents should (i) choose their actions immediately and non-cooperatively, (ii) communicate and act independently or (iii) contract before receiving their information. Well informed agents with similar preferences do not contract or communicate. Communication is desirable when preferences are similar and individual signals are of intermediate quality. Contracting on a Bayesian mechanism only pays when agents' preferences are not too strongly correlated, when information quality is high, and when the cost of delay is sufficiently low. When the correlation is negative and large enough, the optimal contract does not involve any communication.
Keywords: protocol design; mechanism design; decentralization; Turkey; EU
JEL Codes: D23; D71; D74; D86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| agents' preferences positively correlated (C73) | communication enhances outcomes (O36) |
| agents' preferences negatively correlated (D11) | communication ineffective (L96) |
| contracting through Bayesian mechanism effective only when agents' preferences not highly correlated (C73) | communication effectiveness (L96) |
| high quality information + low cost of delay (L15) | effective contracting through Bayesian mechanism (D86) |
| preferences coincide with high probability (D81) | agents opt for non-cooperative actions (C72) |
| intermediate levels of informedness (D80) | communication pays off (L96) |
| uninformed and fully informed players (D83) | non-cooperative actions (C72) |
| optimal organizational forms depend on interplay of preference correlation, information quality, and costs of delay (L15) | decision-making outcomes (D70) |