Journal of Economic Theory (2024)
A principal delegates decisions to a biased agent. Payoffs depend on a state that the principal cannot observe. Initially, the agent does not observe the state, but he can acquire information about it at a cost. We characterize the principal's optimal delegation set. This set features a cap on high decisions and a gap around the agent's ex ante favorite decision. The set may even induce ex-post Pareto-dominated decisions. Under certain conditions on the cost of information acquisition, we show that the principal prefers delegating to an agent with a small bias than to an unbiased agent.
We consider a sender--receiver game in which the state is multidimensional and the receiver's action is binary. The sender always prefers the same action. The receiver can select one dimension of the state to verify. Despite the extreme conflict of interest, costless communication can be influential. We identify a class of symmetric equilibria in which the sender's message reveals which dimensions of the state are highest, and the receiver selects one of these dimensions to check. Using this construction, we characterize whether the sender benefits from communication. Similar equilibria exist when the receiver can check multiple dimensions.
Should a principal keep control or delegate decision making to an agent who has reputational concerns? Consider a two-period repeated game. In each period, the uninformed principal first decides whether to delegate to the informed agent who is either aligned or biased. If delegating, the agent takes an action. If not, the agent sends a cheap talk message to the principal who takes an action. In the second period, the principal prefers communication. The first-period's authority allocation depends on a prior cut-off: Delegation weakly dominates communication only if the prior about the agent being aligned is above this cut-off.
In a small committee, the members first decide whether to acquire information and then engage in a straw poll before voting. I show in a stylized model that unanimity rule is essentially as good as majority rule if the committee members' preferences are commonly known to be homogeneous or heterogeneous. However, if preferences are private information, the first-best equilibrium where every committee member acquires information and tells the truth can be achieved under majority rule but not under unanimity rule.