Delegation and Strategic Silence
53 Pages Posted: 20 Jun 2020 Last revised: 9 Sep 2020
Date Written: September 6, 2020
We consider an incomplete contracting model in which the decision process consists of the project choice and execution effort. Each party has an imperfectly informative private signal on the promising project and successful execution requires the agent’s effort. Revelation of the principal’s signal through her project choice may discourage the agent’s execution by denting his confidence that the project is promising. To avoid the discouragement, the principal prefers to rubber-stamp the agent’s recommendation about the project choice. However, due to the agent’s learning motive, he may be intentionally silent to prompt the principal to reveal her private signal through project choice. As a consequence, strategic silence may prevent informal delegation even when the principal has no incentive to overturn the agent’s proposal.
Keywords: Delegation, Choice and Execution, Confidence, Empowerment, Strategic Silence
JEL Classification: D23, D83, D86, M12
Suggested Citation: Suggested Citation