Project Selection and Competitive Cheap Talk: an Experimental Study
Abstract : When agents with private information compete for resources from a principal and are biased towards their own favored projects (e.g., a CEO decides which division manager’s project to fund) an agency problem arises. However, possible future interaction can mitigate this problem even without reputational concerns, since an agent who induces acceptance of a low-valued project today consumes resources that crowd out even better opportunities that may arrive in the future. Using the theoretical model from Schmidbauer (Games & Economic Behavior, 2017), we devise experiments to address this organizational environment. Specifically, we study the incentives of competing agents to strategically communicate about their own favored project’s value (high or low) to an uninformed decision maker when new projects arrive over time. After observing all advice from agents, the decision maker decides which project to adopt, if any. If no project is adopted subjects enter the next period with new independently drawn projects and continue indefinitely until one project is adopted. We hypothesize that truth telling is easier to support the larger is the benefit from a high-quality project or the less likely it is to occur, but harder to support as agent competition grows. Our findings are broadly consistent with these hypotheses, though participants respond more easily in changes to incentives than to changes in probabilities.
Credibility, Efficiency and the Structure of Authority
Abstract : We study the optimal allocation of authority in a setup with endogeneous information and differing information acquisition abilities. In our principal-agent setting with two- sided information acquisition and no transfers, the players only disagree when uninformed. We show that a sufficiently efficient principal does not lose any authority when delegating to a less efficient agent plus gains from the additional information the agent may have. As information acquisition efforts are substitutes, a relatively more effcient principal finds it easier to influence the agent and provides a recommendation that the agent follows when uninformed. A less efficient principal centralizes fearing that the agent will not follow her advice and follows the agent's recommendation if unable to obtain information herself.
Designing Organizations in Volatile Markets
Abstract : Multinational and multi-product firms often experience uncertainty in the relative return of conducting activities in different markets due to, for example, exchange rate volatility or the changing prospects of different products. We study how a multi-divisional organization should optimally allocate decision-making authority to its managerial members when operating in such volatile markets. To be able to adapt its decisions to local conditions, the organization has to rely on self-interested division managers to collect and disseminate the relevant information. We show that if communication takes the form of verifiable disclosure, then centralized decision-making does not suffer from information asymmetry and it allows the headquarter of the organization to better cope with the inter-market uncertainty. However, a downside of centralization is that it can discourage information acquisition, and this negative effect is amplified by the need for coordinating the activities of different divisions. As a result, the optimality of decentralized decision-making can actually be driven by a large coordination motive.
Big Data and Democracy
Abstract : Despite numerous reports in the public press, there is little evidence for successful manipulation of democratic elections by political interest groups' disinformation campaigns. We ask whether such structural disinformation and election manipulation is theoretically possible in equilibrium. We construct a model, where ideologically heterogeneous news outlets send messages about a politically relevant subject via a news platform (e.g. social media or news aggregator) to ideologically heterogeneous voters, who then make election decisions. We vary the communication technology news outlets have access to: they are either restricted to sending the same message to all voters or they can microtarget voters with individualized messages; voters can be aware of the political position of a news sender, or not. We rank the resulting four games in terms of voter welfare and efficient information utilization and show when an election can be flipped in equilibrium. We discuss policy proposals and conclude that two policies appear favorable: to require news platforms to signal the political position of a message's originator clearly and to support local news outlets.