Delegation and Information Revelation

This paper analyzes, in a set-up where only the control over actions is contractible, the rationale for delegation. An organization must take two decisions. The payoffs are affected by a random parameter and only the agent knows its realization. If the principal delegates the control over the first decision to the agent, his choice may indicate the information that he possesses. If the principal retains control over the second decision, discovering this information is valuable. Hence, this paper provides a new rationale for delegation: A transfer of control to the informed party can be used to discover the private information. (JEL: D23, D82, L22 , M41)