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Authority and communication in the laboratory

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  • Lai, Ernest K.
  • Lim, Wooyoung

Abstract

We report findings from experiments on two delegation–communication games. An uninformed principal chooses whether to fully delegate her decision-making authority to an informed agent or to retain the authority and communicate with the agent via cheap talk to obtain decision-relevant information. In the game in which the delegation outcome is payoff-dominated by both the truthful and the babbling communication outcomes, we find that principal-subjects almost always retain their authority and agent-subjects communicate truthfully. Significantly more choices of delegation than of communication are observed in another game in which the delegation outcome payoff-dominates the unique babbling communication outcome; yet there is a non-negligible fraction of principal-subjects who holds on to their authority and agent-subjects who transmits some information. A level-k analysis of the game indicates that a principal-subject “under-delegates” due to the belief that her less-than-fully-strategic opponent will provide information; such belief is in turn consistent with the actual play.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 74 (2012)
Issue (Month): 2 ()
Pages: 541-560

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Handle: RePEc:eee:gamebe:v:74:y:2012:i:2:p:541-560

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Cheap-talk communication; Decision-making authority; Delegation; Laboratory experiment; Level-k model;

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References

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Cited by:
  1. Katharina Eckartz & Christiane Ehses-Friedrich, 2014. "Strategic Communication: An Experimental Investigation," Jena Economic Research Papers 2014-007, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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