Delegation to incentivize information production

Abstract

This paper examines the impact of delegating decision-making authority to a biased and uninformed agent in a Bayesian persuasion model. We find that delegation can incentivize the sender to produce more information about the merits of the sender’s proposed project. This is because an agent with a small negative bias requires more compelling evidence than the principal to implement the project. The improvement in evidence quality does not occur if the agent’s bias is positive. When the informational benefits exist, delegation lead to higher organizational welfare than centralization. The informational benefits of delegation extend to cases where the principal delegates authority through a general delegation mechanism and when the agent’s bias is privately known.