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Title:Relational delegation PDF Logo
Authors:Alonso, Ricardo
Matouschek, Niko
Issue Date:2004
Series/Report no.:CSIO working paper 0065
Abstract:We explore the optimal delegation of decision rights by a principal to a better informed but biased agent. In an infinitely repeated game a long-lived principal faces a series of short-lived agents. Every period they play a cheap talk game ala Crawford and Sobel (1982) with constant bias, quadratic loss functions and general distributions of the state of the world. We characterize the optimal delegation schemes for all discount rates and show that they resemble organizational arrangements that are commonly observed, including centralization and threshold delegation. For small biases threshold delegation is optimal for almost all distributions. Outsourcing can only be optimal if the principal is sufficiently impatient.
Subjects:delegation
cheap talk
relational contract.
JEL:D23
D82
L23
Document Type:Working Paper
Appears in Collections:CSIO Electronic Working Papers, Northwestern University

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