Essays on the theory of delegation in organizations

In "Optimal Delegation" I analyze the design of decision rules by a principal who faces an informed but biased agent and who is unable to commit to contingent transfers. The contracting problem reduces to a delegation problem in which the principal commits to a set of decisions from which the agent chooses his preferred one. I characterize the optimal delegation set and perform comparative statics on the principal's willingness to delegate and the agent's discretion. I also provide conditions for interval delegation to be optimal and show that they are satisfied when the agent's preferences are sufficiently aligned. Finally, I apply these results to the design of legislative rules and the regulation of a privately informed monopolist.; In "Relational Delegation" I explore the optimal delegation of decision rights by a principal with imperfect commitment power to a better informed but biased agent. I consider a variant of a cheap talk game ala Crawford and Sobel (1982) in which the principal can promise to rubberstamp certain recommendations and agents can impose a cost on her if she reneges on her promise. This cost represents the damage that agents can impose on the principal in a repeated relationship through non-cooperation and measures the commitment power of the principal. I characterize the optimal delegation schemes for any commitment power and show that for small biases threshold delegation is optimal for almost all distributions. Outsourcing can only be optimal if the principal's commitment power is sufficiently small.; In "Shared Control and Strategic Communication" I study the optimal allocation of decision rights by a principal who faces an informed but biased agent when interdependent activities need to be adapted to local conditions. The principal can only commit to an ex-ante allocation of decision rights and whenever she retains some (or all) decision rights the agent communicates his information strategically, i.e. via cheap talk. I show that if activities are complementary the principal can improve the informativeness of communication by sharing control, while sharing control over substitute activities worsens communication. As a result of this communication advantage, sharing control over complementary activities can be optimal.