Benefiting from bias: Delegating to encourage information acquisition

Ian Ball and Xin Gao

Journal of Economic Theory, 2024, vol. 217, issue C

Abstract: A principal delegates decisions to a biased agent. Payoffs depend on a state that the principal cannot observe. Initially, the agent does not observe the state, but he can acquire information about it at a cost. We characterize the principal's optimal delegation set. This set features a cap on high decisions and a gap around the agent's ex ante favorite decision. The set may even induce ex-post Pareto-dominated decisions. Under certain conditions on the cost of information acquisition, we show that the principal prefers delegating to an agent with a small bias than to an unbiased agent.

Keywords: Delegation; Information acquisition; Benefiting from bias (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:217:y:2024:i:c:s002205312400022x

DOI: 10.1016/j.jet.2024.105816

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