Delegation and Information Revelation
AbstractThis paper addresses the question of delegation in a partial contracting set-up, where only the control over actions is contractible. We consider an organization that should take two decisions, affected by a common state of the world parameter only known by the agent. We show that, if the principal gives up the control over the first decision, to the better informed agent, the decision of the agent signals his private information to the principal. The revelation of information, associated with delegation, is valuable for the principal if she retains control over the second decision. Hence, this paper provides a new rational for partial delegation: a transfer of control to the better-informed party can be used by the supervisor to elicit the agent's private information. We establish this result by using the properties of signalling game. Finally, we show that, even if there are loss of control associated with delegation, the benefits of information revelation outweighs these costs and delegation could dominate centralization of all decisions by the principal, even in the case where she uses messages from the agent to acquire information; because those messages could be noisy.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse18_2002.
Date of creation: Jul 2002
Date of revision:
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Delegation; Asymmetric information; Transferable control action; Signalling game;
Other versions of this item:
- Axel Gautier & Dimitri Paolini, 2007. "Delegation and Information Revelation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(4), pages 574-597, December.
- GAUTIER, Axel & PAOLINI, Dimitri, . "Delegation and information revelation," CORE Discussion Papers RP -2018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Axel Gautier & Dimitri Paolini, 2000. "Delegation and Information Revelation," Econometric Society World Congress 2000 Contributed Papers 1292, Econometric Society.
- Gautier, Axel & Paolini, Dimitri, 2000. "Delegation and information revelation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000015, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-09-21 (All new papers)
- NEP-CDM-2002-09-21 (Collective Decision-Making)
- NEP-REG-2002-09-21 (Regulation)
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