Stefan Elbl Droguett
Stefan Elbl Droguett
Working Papers
We characterize the optimal delegating set when a biased manager delegates a task to an employee who incurs in a personal cost to acquire information. The manager faces the trade-off that increased discretion reduces the alignment of the employee's action with the manager's preferred action, but encourages acquisition of information. If the cost is a single lump-sum payment, discretion increases with the cost, up to the limit where complete discretion is optimal even with misaligned preferences. If the cost depends on the employee's effort, the result depends on the bias: increased discretion for sufficiently low biases and the opposite for higher biases. The maximum bias for which delegation occurs does not depend on the cost's functional form. Our results provide a novel justification for discretion as a tool to encourage information acquisition.