Leveraging private information when interests diverge: An experimental comparison of communication versus restricted delegation

This paper investigates how managers choose between communication and delegation when informed workers may have different objectives. We study a laboratory principal-agent environment in which only the worker observes the payoff-relevant state of the world. In three equally likely states, preferences are aligned; in a fourth state, preferences are opposed. The ex ante degree of interest alignment is exogenously varied via the likelihood that the conflict state occurs. We allow managers either to retain authority, delegate authority, or restrict the worker’s discretion under delegation. We find that the manager’s choice between communication and delegation per se exhibits no significant monotone relationship with interest alignment, but conditional on delegation managers impose tighter restrictions when interests become less aligned. Under communication, workers almost always communicate truthfully when interests are aligned, but distort information when interests conflict; overall, messages become more informative and influential as ex ante interest alignment increases. The comparison with equilibrium benchmarks is nuanced: communication is more informative than the pure-strategy benchmarks predict, while the mixed-strategy equilibrium benchmark accounts for part of the observed aggregate pattern. The remaining communication patterns are qualitatively consistent with limited behavioral heterogeneity, especially a modest role for credulous managers, suggesting that small departures from the fully strategic benchmark may help sustain informative communication even when workers remain largely strategic. Overall, managers often retain authority and rely on communication; when they delegate, restrictions increase as interests become less aligned. Communication remains viable because workers distort information mainly when interests actually conflict.