An example of conflicts of interest as pandering disincentives

Chiba, Saori; Leong, Kaiwen

doi:10.1016/j.econlet.2015.03.028

Cited by 5 publications

(15 citation statements)

References 3 publications

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“…Each of these dimensions, in isolation, disrupts the aggregation of information in decision-making, as noted in studies by Crawford and Sobel (1982, hereafter CS) [1] and Che, Dessein, and Kartik (2013, hereafter CDK) [2]. However, a noteworthy revelation in our study is the counterbalancing effect when both dimensions of conflict of interest are simultaneously at play, a phenomenon elucidated by Chiba and Leong (2015) [3]. We embark on a comparative analysis of three key mechanisms: full delegation, veto-based delegation, and communication (non-delegation).…”

Section: Introductionsupporting

confidence: 66%

“…Furthermore, like CDK [2], our model accommodates disagreements over the choice of the outside option, giving rise to pandering incentives. Chiba and Leong (2015) [3] revealed that pandering incentives and bias act as countervailing forces, leading to a non-monotonic relationship between information transmission and the principal's ex-ante expected payoff, in contrast to the expectations set by CS [1] and CDK [2]. Building upon this insight, our paper delves into the impact of these countervailing conflicts of interest on the principal's welfare under delegation.…”

Section: Introductionmentioning

confidence: 80%

“…After observing σ ∈ {1, 2}, the agent sends a message m ∈ {1, 2} to the principal. 3 The principal observes m without noise.…”

Section: Modelmentioning

confidence: 99%

“…The central question we address in this paper is under what circumstances delegation becomes the principal's preferred choice. We adopt a framework reminiscent of cheap talk communication models (non-delegation) designed by Chiba and Leong (2015) [3]. In this setup, the principal faces the task of selecting one of two projects or opting for the outside option, whereas the agent possesses noisy information regarding project payoffs.…”

Section: Introductionmentioning

confidence: 99%

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Countervailing Conflicts of Interest in Delegation Games

Chiba,

Leong

2023

Games

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In this paper, we investigate optimal delegation mechanisms in the presence of countervailing conflicts of interest in the context of principal–agent problems. We introduce two dimensions of conflict of interest—pandering incentives related to the outside option and project biases. We compare three delegation mechanisms: full delegation, veto-based delegation, and communication (no delegation). Contrary to conventional one-dimensional conflict models, our findings reveal a non-monotonic relationship between pandering incentives and bias. These conflicts counterbalance each other, resulting in a principal’s benefit from delegation not strictly decreasing with increased bias. Surprisingly, delegation to a biased agent can be advantageous in certain scenarios. This research sheds light on the complex dynamics of delegation mechanisms when confronted with countervailing conflicts of interest, offering insights into decision-making in principal–agent relationships.

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Section: Introductionsupporting

confidence: 66%

Section: Introductionmentioning

confidence: 80%

“…After observing σ ∈ {1, 2}, the agent sends a message m ∈ {1, 2} to the principal. 3 The principal observes m without noise.…”

Section: Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Countervailing Conflicts of Interest in Delegation Games

Chiba,

Leong

2023

Games

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“…From and as seen in Figure b,c, the incentive to lie is eliminated if

a = 2 b

and

2 π_{A} = π_{B}

. Such countervailing incentives with the strong version of pandering are analyzed by Che et al (2013, Online Appendix) and Chiba and Leong (). We also do not consider the case where the expert is uncertain over the decision‐maker's values, which directly mitigates the loss from pandering in this environment, and can allow for communication in other environments even with extreme biases (Chakraborty & Harbaugh, ).…”

mentioning

confidence: 85%

Biased recommendations from biased and unbiased experts

Chung

Harbaugh

2018

Economics Manag Strategy

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When can you trust an expert to provide honest advice? We develop and test a recommendation game where an expert helps a decision maker choose among two actions that benefit the expert and an outside option that does not. For instance, a salesperson recommends one of two products to a customer who may instead purchase nothing. Subject behavior in a laboratory experiment is largely consistent with predictions from the cheap talk literature. For sufficient symmetry in payoffs, recommendations are persuasive in that they raise the chance that the decision maker takes one of the actions rather than the outside option. If the expert is known to have a payoff bias toward an action, such as a salesperson receiving a higher commission on one product, the decision maker partially discounts a recommendation for it and is more likely to take the outside option. If the bias is uncertain, then biased experts lie even more, whereas unbiased experts follow a political correctness strategy of pushing the opposite action so as to be more persuasive. Even when the expert is known to be unbiased, if the decision maker already favors an action the expert panders toward it, and the decision maker partially discounts the recommendation. The comparative static predictions hold with any degree of lying aversion up to pure cheap talk, and most subjects exhibit some limited lying aversion. The results highlight that the transparency of expert incentives can improve communication, but need not ensure unbiased advice.

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Information Acquisition, Decision Making, and Implementation in Organizations

Itoh

Morita

2023

Management Science

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We study the value of divergence in values and preferences in organizations by combining three stages of a decision process—ex ante information acquisition, interim project choice, and ex post project execution—into a tractable model. A key insight is that our unified model provides predictions different from models without the execution decision stage. We consider an organization that consists of a decision maker who selects a project and an implementer who acquires costly information before project choice and executes the selected project. They have intrinsic and possibly divergent preferences over projects. We show that, although the implementer’s dual role generates a disadvantage of designing conflicts in terms of the implementation motivation, it simultaneously boosts the implementer’s motivation for information acquisition to influence the decision maker’s project choice more under divergent preferences. Our results provide managerial insights that designing conflicts is beneficial only in environments where additional information is sufficiently precise and must be accompanied by a manager who is balanced and incorporating feedback. This paper was accepted by Joshua Gans, business strategy.

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An example of conflicts of interest as pandering disincentives

Cited by 5 publications

References 3 publications

Countervailing Conflicts of Interest in Delegation Games

Countervailing Conflicts of Interest in Delegation Games

Biased recommendations from biased and unbiased experts

Information Acquisition, Decision Making, and Implementation in Organizations

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