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Optimal Delegation and Information Transmission under Limited Awareness

Sarah Auster () and Nicola Pavoni ()
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Sarah Auster: Department of Economics, University of Bonn

No 59, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We study the delegation problem between a principal and an agent, who not only has better information about the performance of the available actions but also superior awareness of the set of actions that are actually feasible. We provide conditions under which the agent finds it optimal to leave the principal unaware of relevant options. By doing so, the agent increases the principal's cost of distorting the agent's choices and increases the principal's willingness to grant him higher information rents. We further show that the principal may use the option of renegotiation as a tool to implement actions that are not describable to her at the contracting stage. If the agent renegotiates, his proposal signals information about the payoff state. We demonstrate that limited awareness of actions improves communication in such games: the principal makes a coarser inference from the recommendations of the privately informed agent and accepts a larger number of his proposals.

Keywords: Unawareness; optimal delegation; strategic disclosure (search for similar items in EconPapers)
JEL-codes: D82 D83 D86 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2021-01
New Economics Papers: this item is included in nep-cta, nep-des and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_059_2021.pdf Second version, 2021 (application/pdf)

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