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Benefiting from bias: Delegating to encourage information acquisition

Author

Listed:
  • Ball, Ian
  • Gao, Xin

Abstract

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.

Suggested Citation

  • Ball, Ian & Gao, Xin, 2024. "Benefiting from bias: Delegating to encourage information acquisition," Journal of Economic Theory, Elsevier, vol. 217(C).
    • Handle: RePEc:eee:jetheo:v:217:y:2024:i:c:s002205312400022x
    DOI: 10.1016/j.jet.2024.105816
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    More about this item

    Keywords

    Delegation; Information acquisition; Benefiting from bias;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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