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Delegation and Information Revelation

  • Axel Gautier
  • Dimitri Paolini

This paper analyzes, in a setup where only the control over actions is contractible, the rationale for delegation. An organization must take two decisions. The payoffs are affected by a random parameter, and only the agent knows its realization. If the principal delegates the control over the first decision tothe agent, his choice may indicate the information that he possesses. If the principal retains control over the second decision, discovering this information is valuable. Hence, this paper provides a new rationale for delegation: A transfer of control to the informed party can be used to discover private information.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 163 (2007)
Issue (Month): 4 (December)
Pages: 574-597

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200712)163:4_574:dair_2.0.tx_2-g
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  1. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-59, March.
  2. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
  3. Martimort, David, 1997. " A Theory of Bureaucratization Based on Reciprocity and Collusive Behavior," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(4), pages 555-79, December.
  4. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  5. Armstrong, Mark, 1995. "Delegation and discretion," MPRA Paper 17069, University Library of Munich, Germany.
  6. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  7. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-75, September.
  8. Harris, Milton & Raviv, Artur, 1998. "Capital budgeting and delegation," Journal of Financial Economics, Elsevier, vol. 50(3), pages 259-289, December.
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  11. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
  13. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  14. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  15. Legros Patrick, 1993. "Information Revelation in Repeated Delegation," Games and Economic Behavior, Elsevier, vol. 5(1), pages 98-117, January.
  16. Melumad, Nahum & Mookherjee, Dilip & Reichelstein, Stefan, 1992. "A theory of responsibility centers," Journal of Accounting and Economics, Elsevier, vol. 15(4), pages 445-484, December.
  17. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
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