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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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