RESEARCH

I am an experimentalist whose primary work is focused on information processing in
organizations. My work explores the roles of rules and discretion both with and without
communication.

My job market paper focuses on a setting where an organization is run by a principal who must decide on a rule, that dictates actions for an agent to take. These actions are based on what information the principal receives. The principal has an incentive to shape how the information is used, but has limited control because the information they receive and a description of actions is complex. If the principal does not retain control for some information they may receive, the principal has the chance to communicate to the agent. The principal has a core problem of how to optimally exercise limited control. In addition, the form of limited control may have an impact on communication. In this setting, what rules will be written and how complete will those rules be? In the experimental setup, ‘theory’ suggests that the more preferences are aligned, the more scope for communication. I find experimental evidence to support this prediction. It is also predicted that the written rule will divide the remaining information into different categories to facilitate clear communication. I do not find this prediction to be supported in the lab.

We consider the trade-off between imperfect control and communication in organizations. A principal anticipates receiving private information and hires an agent to take an action for her. She has the ability to contractually tie the agent's action to the state, but this control is incomplete. States not covered by a contract induce a communication game. Close alignment of interests favors communicating and, thus, ceding authority to the agent, and vice versa. Contracting increases the number of actions that can be induced through communication. Optimal contracts that do not cover all states both substitute for and facilitate communication.

This paper analyzes how a principal writes a rule that specifies states and an action to be taken in those states when the agent specifies one action that covers the compliment of the states in the rule. Two timings are examined: The principal moving first, and the agent moving first. Because the agent has a conflict of interest with the principal, the principal may want to retain more control over the action at the cost of the sensitivity of the action to the state. The principal has a problem of how to optimally write a rule and sometimes has to worry about the impact the written rule may have on the agent’s action. I predict and experimentally find that as the conflict of interest between the two parties increases, the rule becomes more complete.

Communication introduces new ways in which level-k may matter in outguessing games. Prior to playing an outguessing game, a sender sends a message to a receiver stating that the sender will play a specific action. It is predicted that the message causes players to behave according to the basic model of level-k presented in Crawford (2003): Level-0 senders are truthful and level-0 receivers believe level-0 senders. Level-k senders best respond to level-(k-1) receivers. Level-k receivers believe that level-k senders are truthful. Subjects play five periods of the game, anonymously and randomly playing against the field in each period. This design is utilized to analyze how experience impacts a subject's level. The experiment finds that level-0 play is common in the first period of play, but vanishes almost completely by the last period, indicating that subjects do not have a stable preference for truth-telling. Play is mostly focused on levels 0, 1, and 2. The number of unidentifiable players rises over time, indicating that players play more complex strategies as they grow experienced.

 

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