Benefiting from Bias: Delegating to Encourage Information Acquisition
Theoretical Economics
2023-11-21 v1
Abstract
A principal delegates decisions to a biased agent. Payoffs depend on a state that the principal cannot observe. Initially, the agent does not observe the state, but he can acquire information about it at a cost. We characterize the principal's optimal delegation set. This set features a cap on high decisions and a gap around the agent's ex ante favorite decision. It may even induce ex-post Pareto-dominated decisions. Under certain conditions on the cost of information acquisition, we show that the principal prefers delegating to an agent with a small bias than to an unbiased agent.
Cite
@article{arxiv.2311.11526,
title = {Benefiting from Bias: Delegating to Encourage Information Acquisition},
author = {Ian Ball and Xin Gao},
journal= {arXiv preprint arXiv:2311.11526},
year = {2023}
}