Information acquisition in repeated relationships

This paper presents a new rationale for delegation. In a repeated relationship, when the principal gives up at time t the control over an action to the better informed agent, the decision taken by the agent signals his private information to the principal. The revelation of information is valuable to the principal only in a context of repeated relation where the principal can use the information at time t+1 to take another decision. In this paper, we present an example where delegation occurs only if the relation lasts for more than one period. In a single period context, if the agent has a bias in favor of one project, he does not have incentives to select a project that is not his preferred one; hence he does not disclose his private information and delegation is not valuable. While in a repeated relationship, it becomes costly for the agent to keep the principal non-informed and this counterbalances the agent’s bias for one project. Shared-control (partial delegation) is then the preferred organizational structure when the interaction is repeated. Moreover, shared-control dominates an alternative mechanism where the principal centralizes all the decisions and the information is transfered through a message game.