Relational Delegation

Niko Matouschek and Ricardo Alonso

No 4870, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We explore the optimal delegation of decision rights by a principal to a better informed but biased agent. In an infinitely repeated game a long-lived principal faces a series of short-lived agents. Every period they play a cheap talk game a la Crawford and Sobel (1982) with constant bias, quadratic loss functions and general distributions of the state of the world. We characterize the optimal delegation schemes for all discount rates and show that they resemble organizational arrangements that are commonly observed, including centralization and threshold delegation. For small biases threshold delegation is optimal for almost all distributions. Outsourcing can only be optimal if the principal is sufficiently impatient.

Keywords: Delegation; Cheap talk; Relational contract (search for similar items in EconPapers)
JEL-codes: D23 D82 L23 (search for similar items in EconPapers)
Date: 2005-01
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Relational delegation (2007)
Working Paper: Relational delegation (2007)
Working Paper: Relational Delegation (2005)
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