We are very grateful to Editor Chaim Fershtman and two anonymous referees for their comments. We also thank Heski Bar-Isaac, Bob Gibbons, John Matsusaka, Peter Mueser, Marco Ottaviani, Scott Schaefer, Kathy Spier, and Jan Zabojnik as well as seminar participants at the Kellogg School of Management, Melbourne Business School, and the University of New South Wales and conference participants of the 2004 Summer Camp in Organizational Economics at MIT Sloan, the 2005 IZA Workshop on Behavioral and Organizational Economics, and the 2005 Econometric Society World Congress for very helpful discussions. All remaining errors are our own.
Article first published online: 9 OCT 2008
The RAND Journal of Economics
Volume 38, Issue 4, pages 1070–1089, Winter 2007
How to Cite
Alonso, R. and Matouschek, N. (2007), Relational delegation. The RAND Journal of Economics, 38: 1070–1089. doi: 10.1111/j.0741-6261.2007.00126.x
- Issue published online: 9 OCT 2008
- Article first published online: 9 OCT 2008
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.