Who to Listen to?: A Model of Endogenous Delegation

William Fuchs, Satoshi Fukuda and SeyedMahyar Sefidgaran

No 17319, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Two privately-informed agents must take a joint action without resorting to sidepayments. Size and location of the support of each agent's private types (their preferred action) determine the degree of conflict. Under high conflict, it is too costly to elicit agents' information, which leads to an optimal constant allocation. Delegation arises endogenously when there is conflict and asymmetry in the amount of private information. The agent with more private information dictates the allocation within somebounds. When supports overlap information is shared and sometimes ex-post inefficient actions are optimally taken. Welfare relative to the rst-best is non-monotone in conflict.

Date: 2022-05
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