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Delegation Using Forward Induction

Author

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  • Swagata Bhattacharjee

    (Department of Economics, Ashoka University, Plot No. 2, Rajiv Gandhi Education City, Sonepat, Haryana 131029, India)

Abstract

This paper explores how delegation can be used as a signal to sustain cooperation. I consider a static principal–agent model with two tasks, one resembling a coordination game. If there is asymmetric information about the agent’s type, the principal with high private belief can delegate the first task as a signal. This is also supported by the forward induction argument. However, in the laboratory setting, this equilibrium is chosen only sometimes. When the subjects have information about past sessions, there is a significant increase in the use of delegation. This finding sheds light on equilibrium selection in Bayesian games.

Suggested Citation

  • Swagata Bhattacharjee, 2022. "Delegation Using Forward Induction," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 24(03), pages 1-33, September.
    • Handle: RePEc:wsi:igtrxx:v:24:y:2022:i:03:n:s0219198921500225
    DOI: 10.1142/S0219198921500225
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    More about this item

    Keywords

    Delegation; forward induction; lab experiment; information;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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