Optimal Delegation
52 Pages Posted: 29 Dec 2005
Date Written: October 2005
Abstract
We analyse the optimal delegation of decision rights by a uninformed principal to an informed but biased agent. When the principal cannot use message-contingent transfers, she offers the agent a set of decisions from which he can choose his preferred one. We fully characterize the optimal delegation set for general distributions of the state space and preferences with arbitrary continuous state-dependent biases. We also provide necessary and sufficient conditions for particular delegation sets to be optimal. Finally, we show that the optimal delegation set takes the form of a single interval if the agent's preferences are sufficiently similar to the principal's.
Keywords: Delegation, decision rights, mechanism design
JEL Classification: D82, L23
Suggested Citation: Suggested Citation
IZA Institute of Labor Economics
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