Seminar by Luca Corazzini

ore 12.30 Sala Seminari – I° piano, Palazzo Levi Cases, Via del Santo 33


Watch your Words: an Experimental Study on Communication and the Opportunity Cost of Delegation

Seminar by Luca Corazzini, Università Ca' Foscari di Venezia

We consider a principal-agent relationship, and study the interplay between communication and the opportunity cost of delegation in influencing the principal’s choice to delegate and the agent’s propensity to prove worthy of trust. In order to this, we adopt a lost-wallet game in which the agent that wishes to be trusted can send a freeform message to his counterpart in the initial stage of the game. We find that communication is effective since it attenuates the effect of the opportunity cost of delegation on the principal’s choice. In particular, when the opportunity cost of delegation is high, communication increases beliefs on the amount that the agent will return in case of delegation. Moreover, we find that non-precise statements of intent are more frequent in the presence of lower opportunity costs of delegation, in which case we document an illusion effect: the agent incorrectly expects non-precise communication to exert positive effects on principal’s beliefs and her propensity to delegate.