November 14, 2017, 11:00–12:30
Economic Theory Seminar
A decision-maker needs to reach a decision and is forced to rely on an expert whose interests are imperfectly correlated with her own. The decision-maker may delegate authority of decision-making to the expert or may retain authority and have the expert report back to her. The expert chooses how much to learn about each of their interests, creating endogenous conflicts between expert and decision-maker. Under delegation, the expert's choices reflect the expert's private interests exclusively. In contrast, communication incentivizes the expert to consider the decision-maker's interests as well. We characterize the information structures under which the decision-maker unambiguously prefers to communicate. For these information structures, communication and unconstrained delegation result in the same equilibrium outcome. Moreover, given the equilibrium information structure, the optimal form of delegation is indeed unconstrained. We extend our analysis to the case where the decision-maker chooses the optimal form of constrained delegation after she has seen what information the expert acquired.