Delegation to a possibly ignorant agent

Aggey Semenov

Canadian Journal of Economics, 2018, vol. 51, issue 1, 64-93

Abstract: In a delegation problem, an uninformed principal delegates decision-making powers to a biased and possibly ignorant agent. The principal cannot use monetary payments but can restrict the set of the agent's choices. I show that in the general case, the principal may offer a disconnected set of choices. In a setting with arbitrary bias the uncertainty principle holdsthe principal benefits as the likelihood that the agent is informed increases. When the bias is constant, I show that the ally principle holdsthe principal benefits as the bias becomes smaller. Finally, when the likelihood of the agent being informed is determined by the agent's effort, then for small biases the principal benefits from limiting the agent's choice. When the agent is sufficiently biased, the principal gives more choice to the agent, so as to to improve incentives for information acquisition.

JEL-codes: D82 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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