Authority and Specialization under Informational Interdependence

Abstract

I study the optimal allocation of decision rights when a principal must aggregate information to decide over two issues. Agents have private access to (imperfect) information about two states of the world, each relevant to both decisions. Such interdependence, together with endogenous information acquisition, enrich the standard trade-off between informational gains and loss of control. First, the principal can improve communication with agents by delegating high-conflict decisions while retaining authority over low-conflict ones. However, decision-makers under delegation are expected to `lose perspective' because agents will fail to internalize the interdependence. Second, agents may specialize by acquiring information about one state only. Such specialization will be motivated by an agent's preferences, his acquisition costs or the informational interdependence. I find that specialists can be trusted more than generalists who are expected to reveal information about the same state.