Watch Your Words: An Experimental Study on Communication and the Opportunity Cost of Delegation

University of Verona, Working Paper Series 18/2017

Stevens Institute of Technology School of Business Research Paper

54 Pages Posted: 20 Dec 2017 Last revised: 21 May 2018

See all articles by Armenak Antinyan

Armenak Antinyan

Wenlan School of Business; United Nations Development Program

Luca Corazzini

Ca Foscari University of Venice - Dipartimento di Economia

Elena D'Agostino

University of Messina

Filippo Pavesi

Università Carlo Cattaneo (LIUC) - Institute of Economics; Stevens Institute of Technology - School of Business

Date Written: December 5, 2017

Abstract

Communication has been shown to play a positive role in promoting trust, yet there is no evidence on how sensitive this result is to the size of the gains from cooperation. To investigate this issue, we adopt an experimental design in which an agent can send a free form message to a principal, before the latter makes a delegation choice, by selecting whether or not to allow the agent to decide how to share a given sum between the two of them. We allow the opportunity cost of delegation to vary, and find that communication increases the principal’s beliefs on the amount that the agent will choose to transfer, only when this cost is high to start with, therefore attenuating the effect of the size of the opportunity cost of delegation on the principal’s choice. We find evidence of deception, but in some circumstances the agent is overoptimistic about her ability to deceive. Indeed, in the presence of lower opportunity costs of delegation, we document an illusion effect: the agent uses non-precise promises and incorrectly expects these to exert positive effects on the principal’s beliefs and propensity to delegate.

Keywords: Communication, Promises, Trust, Delegation, Lost-Wallet Game, Language Precision

JEL Classification: C7, C9, D9

Suggested Citation

Antinyan, Armenak and Corazzini, Luca and D'Agostino, Elena and Pavesi, Filippo, Watch Your Words: An Experimental Study on Communication and the Opportunity Cost of Delegation (December 5, 2017). University of Verona, Working Paper Series 18/2017; Stevens Institute of Technology School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=3083149 or http://dx.doi.org/10.2139/ssrn.3083149

Armenak Antinyan

Wenlan School of Business ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

United Nations Development Program ( email )

Petros Adamyan 14
Yerevan, 0010
Armenia

Luca Corazzini

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/pag/16892/

Elena D'Agostino

University of Messina ( email )

Piazza Pugliatti, 1
Messina, 98122
Italy
+39090719202 (Fax)

Filippo Pavesi (Contact Author)

Università Carlo Cattaneo (LIUC) - Institute of Economics ( email )

21053 Castellanza (VA)
Italy

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

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