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Countervailing Conflicts of Interest in Delegation Games

Author

Listed:
  • Saori Chiba

    (Faculty of Economics, Kyoto Sangyo University, Motoyama, Kamigamo, Kita-ku, Kyoto 603-8555, Japan)

  • Kaiwen Leong

    (Economic Growth Center, Nanyang Technological University, Singapore 639798, Singapore
    Department of Accounting, Finance and Economics, Griffith University, Nathan 4111, QLD, Australia)

Abstract

In this paper, we investigate optimal delegation mechanisms in the presence of countervailing conflicts of interest in the context of principal–agent problems. We introduce two dimensions of conflict of interest—pandering incentives related to the outside option and project biases. We compare three delegation mechanisms: full delegation, veto-based delegation, and communication (no delegation). Contrary to conventional one-dimensional conflict models, our findings reveal a non-monotonic relationship between pandering incentives and bias. These conflicts counterbalance each other, resulting in a principal’s benefit from delegation not strictly decreasing with increased bias. Surprisingly, delegation to a biased agent can be advantageous in certain scenarios. This research sheds light on the complex dynamics of delegation mechanisms when confronted with countervailing conflicts of interest, offering insights into decision-making in principal–agent relationships.

Suggested Citation

  • Saori Chiba & Kaiwen Leong, 2023. "Countervailing Conflicts of Interest in Delegation Games," Games, MDPI, vol. 14(6), pages 1-20, November.
    • Handle: RePEc:gam:jgames:v:14:y:2023:i:6:p:71-:d:1281550
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    References listed on IDEAS

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