Delegation based on cheap talk

Sookie Xue Zhang () and Ralph-Christopher Bayer ()
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Sookie Xue Zhang: Zhongnan University of Economics and Law
Ralph-Christopher Bayer: University of Adelaide

Theory and Decision, 2023, vol. 94, issue 2, No 7, 333-361

Abstract: Abstract We study a real-effort environment, where a delegator has to decide if and to whom to delegate a task. Applicants send cheap-talk messages about their past performance before the delegator decides. We experimentally test the theoretical prediction that information transmission does not occur in equilibrium. In our experiment, we vary the message space available to the applicants and compare the information transmitted as well as the level of efficiency achieved. Depending on the treatment, applicants can either submit a Number indicating past performance, an Interval in which past performance falls, or a free Text message. We observe that messages contain information in all treatments. Interestingly, information transmission occurs only in the treatments where messages are intervals or free text. Social welfare is higher if messages are intervals or free text than precise numbers. Gender and ethnicity stereotypes only influence delegation in the Number treatment, where no information transmission takes place.

Keywords: Delegation; Cheap talk; Experiment; Efficient allocation (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11238-022-09887-8

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