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Relational delegation
Author(s) -
Alonso Ricardo,
Matouschek Niko
Publication year - 2007
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.0741-6261.2007.00126.x
Subject(s) - delegation , principal (computer security) , discretion , microeconomics , outsourcing , power (physics) , economics , distribution (mathematics) , mathematical economics , computer science , business , mathematics , computer security , marketing , mathematical analysis , physics , management , quantum mechanics , political science , law
We analyze a cheap talk game with partial commitment by the principal. We first treat the principal's commitment power as exogenous and then endogenize it in an infinitely repeated game. We characterize optimal decision making for any commitment power and show when it takes the form of threshold delegation—in which case the agent can make any decision below a threshold—and centralization—in which case the agent has no discretion. For small biases, threshold delegation is optimal for any smooth distribution. Outsourcing can only be optimal if the principal's commitment power is sufficiently small.