Seminarios académicos y conferencias
Multi-dimensional communication with limited commitment
26 Diciembre 2017 - 15:00
Sala de postgrado, Facultad de Ciencias Económicas y Administrativas UC
Abstarct: We consider a contractual relationship between an uninformed principal and an informed agent. The agent observes a multi-dimensional piece of private information which affects the mapping from actions to both players’ payoffs. Conditional on the information, the two parties’ preferences are not perfectly aligned. The agent sends a message to the principal, who then chooses multiple actions. We ask what outcomes the principal can achieve if she has limited commitment. In particular, we allow precisely one dimension in which the principal is able to commit to an action as a function of the agent’s message. In all other dimensions, the principal must take an action that is optimal given what she has learned. For example, an employer may be able to commit to a wage profile but unable to commit to other conditions of the job. We show that there is always a mechanism that induces full revelation of the information about the non-commitment actions. Furthermore, as the principal and the agent’s preferences become more and more divergent in the dimension of commitment, the principal’s payoff approaches that in which she has full information pertaining to all the dimensions in which she lacks commitment power. Our results imply that incompleteness of contracts may be irrelevant for payoffs and information revelation as long as there is some contractable outcome in which there is large conflict.