Abstract:This paper highlights the distribution of decision-making responsibility within a stylized minister/senior/junior hierarchy. The minister could delegate authority only one level lower to a biased uninformed senior, then the latter could further delegate to the informed junior. We characterized the delegation outcomes according to the subordinates' biases. Results showed that when the senior's personal interest was between the minister's and the junior's, by restricting the delegation set delievered to the senior, the minister could attain the best outcome as if she contracted directly with the informed party. The implications for recruitment policies, job contents and promotion decisions were explored. The loyal agent may be assigned to the lower position. If the minister cannot find out each subordinate's bias, she may delegate the task to a properly biased senior who can in turn observe the informed party's bias. Finally, within the hierarchy the minister sometimes preferred commanding via the senior to the delegation.
Key words: Delegation, Cheap Talk, Mediator, Hierarchy
JEL classification codes: D72, D78, D82
Downloadable