Delegation Using Forward Induction

Swagata Bhattacharjee (swagata.bhattacharjee@ashoka.edu.in)

No 17, Working Papers from Ashoka University, Department of Economics

Abstract: This paper explores a potentially important role of delegation: as a signal to sustain cooperation in coordination games. I consider a static principal-agent model with two tasks, one of which requires cooperation between the principal and the agent. If there is asymmetric information about the agent's type, the principal with a private belief that the agent is a good type can delegate the first task as a signal of his private belief. This equilibrium is supported by the forward induction argument. I conduct laboratory experiments to test these theoretical predictions and to examine the role of information in equilibrium selection. I find that delegation is used only sometimes to facilitate cooperation; however, when the subjects have information about past sessions, there is a statistically significant increase in the use of delegation. This evidence suggests that information matters in equilibrium selection in Bayesian games.

Keywords: Delegation; Forward; Induction; Information; Lab; Experiment (search for similar items in EconPapers)
Pages: 37
Date: 2019-08-02
New Economics Papers: this item is included in nep-exp and nep-gth
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