Optimal limited authority for principal. (English) Zbl 1284.91324
Summary: This article studies a principal-agent problem where the only commitment for the uninformed principal is to restrict the set of decisions she makes following a report by the informed agent. We show that an ex ante optimal equilibrium for the principal corresponds to a finite partition of the state space, and each retained decision is ex post suboptimal for the principal, biased toward the agent’s preference. Generally an optimal equilibrium does not maximize the number of decisions the principal can credibly retain. Compared to no commitment, limited authority improves the quality of communication from the agent. As a result, it can give the principal a higher expected payoff than delegating the decision to the agent.
References:
| [1] | Alonso, R.; Dessein, W.; Matouschek, N., When does coordination require centralization?, Amer. Econ. Rev., 98, 145-179 (2008) |
| [2] | Alonso, R.; Matouschek, N., Relational delegation, RAND J. Econ., 38, 1070-1089 (2007) |
| [3] | Alonso, R.; Matouschek, N., Optimal delegation, Rev. Econ. Stud., 75, 259-293 (2008) · Zbl 1141.91354 |
| [4] | Ambrus, A.; Azevedo, E.; Kamada, Y., Hierarchical cheap talk, Theor. Econ., 8, 233-261 (2013) · Zbl 1395.91063 |
| [6] | Austen-Smith, D.; Banks, J. S., Cheap talk and burned money, J. Econ. Theory, 91, 1-16 (2000) · Zbl 1127.91366 |
| [7] | Billingsley, P., Probability and Measure (1995), John Wiley and Sons: John Wiley and Sons New York · Zbl 0822.60002 |
| [8] | Blume, A.; Board, O.; Kawamura, K., Noisy talk, Theor. Econ., 2, 395-440 (2007) |
| [9] | Chen, Y.; Kartik, N.; Sobel, J., Selecting cheap-talk equilibria, Econometrica, 76, 117-136 (2008) · Zbl 1132.91539 |
| [10] | Cho, I.-K.; Kreps, D. M., Signaling games and stable equilibria, Quart. J. Econ., 102, 179-221 (1987) · Zbl 0626.90098 |
| [11] | Crawford, V. P.; Sobel, J., Strategic information transmission, Econometrica, 50, 1431-1451 (1982) · Zbl 0494.94007 |
| [12] | Dessein, W., Authority and communication in organizations, Rev. Econ. Stud., 69, 811-838 (2002) · Zbl 1040.91094 |
| [13] | Goltsman, M.; Horner, J.; Pavlov, G.; Squintani, F., Mediation, arbitration and negotiation, J. Econ. Theory, 144, 1397-1420 (2009) · Zbl 1169.91009 |
| [15] | Grossman, S. J.; Hart, O. D., The costs and benefits of ownership: A theory of vertical and lateral ownership, J. Polit. Economy, 94, 691-719 (1986) |
| [16] | Hart, O. D.; Moore, J., Incomplete contracts and renegotiation, Econometrica, 56, 755-785 (1988) · Zbl 0644.90011 |
| [18] | Hermalin, B. E.; Katz, A. W.; Craswell, R., Contract law, (Polinsky, A. M.; Shavell, S., Handbook of Law and Economics. Handbook of Law and Economics, Handb. Econ., vol. 1 (2007), North-Holland), 3-138 |
| [19] | Holmstrom, B., On the theory of delegation, (Boyer, M.; Kihlstrom, R., Bayesian Models in Economic Theory (1984), North-Holland: North-Holland New York) · Zbl 0629.90001 |
| [20] | Ivanov, M., Communication via a strategic mediator, J. Econ. Theory, 145, 869-884 (2010) · Zbl 1238.91093 |
| [21] | Ivanov, M., Informational control and organization design, J. Econ. Theory, 145, 721-751 (2010) · Zbl 1238.91091 |
| [22] | Kamenica, E.; Gentzkow, M., Bayesian persuasion, Amer. Econ. Rev., 101, 2590-2615 (2011) |
| [23] | Kartik, N., Strategic communication with lying costs, Rev. Econ. Stud., 76, 1359-1395 (2009) · Zbl 1186.91046 |
| [25] | Kovac, E.; Mylovanov, T., Stochastic mechanism in settings without monetary transfers: The regular case, J. Econ. Theory, 144, 1373-1395 (2009) · Zbl 1169.91010 |
| [26] | Krishna, V.; Morgan, J., Contracting for information under imperfect commitment, RAND J. Econ., 39, 905-925 (2008) |
| [28] | Li, W., Peddling influence through intermediaries, Amer. Econ. Rev., 100, 1136-1162 (2010) |
| [29] | Marino, A. M., Delegation versus veto in organizational games of strategic communication, J. Public Econ. Theory, 9, 979-992 (2007) |
| [30] | Melumad, N. D.; Shibano, T., Communication in settings with no transfers, RAND J. Econ., 22, 173-198 (1991) |
| [31] | Milgrom, P.; Roberts, J., An economic approach to influence activities in organizations, Amer. J. Sociol., 94, 154-179 (1988) |
| [32] | Milgrom, P.; Weber, R., Distributional strategies for games with incomplete information, Math. Oper. Res., 10, 619-632 (1985) · Zbl 0582.90106 |
| [33] | Mylovanov, T., Veto-based delegation, J. Econ. Theory, 138, 297-307 (2008) · Zbl 1140.91344 |
| [34] | Szalay, D., The economics of clear advice and extreme options, Rev. Econ. Stud., 72, 1173-1198 (2005) · Zbl 1182.91111 |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
