Optimally Biased Expertise
CERGE-EI Working Paper Series No. 736
53 Pages Posted: 19 Oct 2022 Last revised: 30 May 2023
Date Written: May 18, 2023
This paper shows that in delegation problems, a biased principal can strictly benefit from hiring an agent with misaligned preferences or beliefs. We consider a ``delegated expertise'' problem in which the agent has an advantage in acquiring information relative to the principal. We show that it is optimal for a principal who is ex ante biased towards one action to select an agent who is less biased. Such an agent is more uncertain ex ante about what the best course of action is and would acquire more information. The benefit to the principal from a more informed decision always outweighs the cost of a small misalignment. Further, we show that selecting an optimally misaligned agent is a valuable tool, which performs on par with optimal contracting (while imposing no additional cost on the principal) and outperforms restricted delegation. Finally, we show that all results continue to hold if the agent has to recommend an action instead of being able to choose it directly.
Keywords: delegation, rational inattention, heterogeneous beliefs, discrete choice
JEL Classification: D82, D83, D91, M51
Suggested Citation: Suggested Citation