Delegating learning

Learning is crucial to organizational decision making but often needs to be delegated. We examine a dynamic delegation problem where a principal decides on a project with uncertain profitability. A biased agent, who is initially as uninformed as the principal, privately learns the profitability over time and communicates to the principal. We formulate learning delegation as a dynamic mechanism design problem and characterize the optimal delegation scheme. We show that private learning gives rise to the trade‐off between how much information to acquire and how promptly it is reflected in the decision. We discuss implications on learning delegation for distinct organizations.

Extreme Points and Majorization: Economic Applications

We characterize the set of extreme points of monotonic functions that are either majorized by a given function f or themselves majorize f and show that these extreme points play a crucial role in many economic design problems. Our main results show that each extreme point is uniquely characterized by a countable collection of intervals. Outside these intervals the extreme point equals the original function f and inside the function is constant. Further consistency conditions need to be satisfied pinning down the value of an extreme point in each interval where it is constant. We apply these insights to a varied set of economic problems: equivalence and optimality of mechanisms for auctions and (matching) contests, Bayesian persuasion, optimal delegation, and decision making under uncertainty.

Opportunistic, not Optimal Delegation: The Political Origins of Central Bank Independence

Economists have long argued that central banks ran by technocrats have greater independence from the government. But in many countries, politically experienced central bankers are at the helm, including even highly independent central banks. To explain the level of central bank independence awarded, we develop a formal model where nominating politicians screen central bankers for their political ambitions. We show how screening and reelection efforts by the nominating politician changes the level of autonomy associated with different types of candidates. We predict that technocrats are associated with higher levels of independence than nominees with political experience, but as the appointing politician faces tougher reelection, candidates with political experience are associated with higher independence as well. We test our theory using new data from 29 post-communist countries between 1990 and 2012. We find evidence that the reelection strategy of the nominating politician is an important predictor of the level of central bank independence.