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Benefiting from Bias: Delegating to Encourage Information Acquisition

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  • Ian Ball
  • Xin Gao

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. It 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.

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  • Ian Ball & Xin Gao, 2023. "Benefiting from Bias: Delegating to Encourage Information Acquisition," Papers 2311.11526, arXiv.org.
    • Handle: RePEc:arx:papers:2311.11526
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    File URL: http://arxiv.org/pdf/2311.11526
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