Governing Adaptation and Coordination: A Generalization of Multi-agent Delegation

Abstract

This paper uses a mechanism design without transfer approach to investigate the optimal communication mechanism in a two-division organization. The principal, with perfect commitment power on multiple decision rules, wants decisions to be both adapted to local conditions and coordinated with each other. Agents are privately informed about local conditions and only care about adaptation loss. We explicitly characterize the essentially unique optimal dominant strategy mechanism with weak continuity restriction in this framework.

The optimal mechanism takes the form of “delegation with autonomous constraint”, where each agent is granted a delegation interval contingent on the other’s report. The optimal design of these intervals is elegantly decomposed into two single agent’s unilateral coordination problems. An agent’s decision in the optimal mechanism falls into three cases: i) full adaptation; ii) the state-dependent unilateral coordination; and iii) the state-independent joint coordination. This special structure makes the optimal mechanism group strategyproof, and allows us to conduct multiple comparative static analyses with respect to delegated discretion.

Keywords: Adaptation, Coordination, Delegation, Dominant Strategy Mechanism Design

JEL Classification: D23, D82, L23, M11