🤖 AI Summary
This study addresses a principal–agent problem without monetary transfers, where the principal must decide whether to undertake a project, facing private implementation costs, while the agent possesses private information about benefits and incompletely internalizes those costs. Integrating Bayesian mechanism design, information economics, and game theory, the paper proposes an optimal decision mechanism that does not require the agent to report any information. Instead, the principal either fully delegates both information and decision rights to the agent at no cost or entirely disregards the agent’s input. This approach achieves incentive compatibility and maximizes the principal’s expected utility. The mechanism departs from conventional paradigms reliant on informational reporting and demonstrates that, under certain conditions, delegation strictly dominates control, thereby offering a novel pathway to efficiency in transfer-free principal–agent settings.
📝 Abstract
A principal must decide whether to implement a project. She privately knows the cost, an agent privately knows the benefit. Monetary transfers are not available, and compared to the principal, the agent does not fully internalize the cost. We show that the principal-optimal mechanism does not require the agent to report. Instead, it either ignores the agent or endows the agent with free information and full decision authority.