Delegation Using Forward Induction
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Published:2021-09-25
Issue:
Volume:
Page:2150022
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ISSN:0219-1989
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Container-title:International Game Theory Review
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language:en
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Short-container-title:Int. Game Theory Rev.
Affiliation:
1. Department of Economics, Ashoka University, Plot No. 2, Rajiv Gandhi Education City, Sonepat, Haryana 131029, India
Abstract
This paper explores how delegation can be used as a signal to sustain cooperation. I consider a static principal–agent model with two tasks, one resembling a coordination game. If there is asymmetric information about the agent’s type, the principal with high private belief can delegate the first task as a signal. This is also supported by the forward induction argument. However, in the laboratory setting, this equilibrium is chosen only sometimes. When the subjects have information about past sessions, there is a significant increase in the use of delegation. This finding sheds light on equilibrium selection in Bayesian games.
Funder
University of Texas at Austin
Publisher
World Scientific Pub Co Pte Ltd
Subject
Statistics, Probability and Uncertainty,Business and International Management,General Computer Science