Leadership based on asymmetric information

Mana Komai and Mark Stegeman

RAND Journal of Economics, 2010, vol. 41, issue 1, 35-63

Abstract: Rational players, unconstrained by contracts or formal authority, choose to follow a better‐informed leader, whose action reveals part of her information. If the leader satisfies a credibility condition, then the unique nondegenerate equilibrium solves distinct shirking and coordination problems and achieves the first best. If credibility fails, as is more likely for a large organization, then followers ignore the leader, and equilibria are very inefficient. Appointing multiple leaders, or a high‐cost leader, can restore credibility. If players invest privately in information, then a leader often appears endogenously. The equilibrium concept is an original extension of sequential equilibrium to continuous states.

Date: 2010
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