RIEB Discussion Paper Series No.2024-25

Title

Delegating Decisions to Independent Committees

Abstract

This paper analyzes the delegation of binary decisions to a committee of homogeneous agents. The principal determines the committee size and a reward scheme contingent on the revealed state and the committee's choice. Agents can acquire private information at a cost but lack intrinsic motives to make correct decisions. The main results are as follows: For any committee size and any prior distribution of the state, the reward scheme that minimizes the cost of making agents acquire information induces the committee to make decisions by majority rule. If the principal is ex-ante indifferent between the two alternatives, the optimal reward scheme for the principal induces the committee to use the majority rule and the optimal committee size is inversely U-shaped regarding information quality.

Keywords

Moral hazard; Free-rider problem; Majority rule; Committee size; Information acquisition; Monetary transfers

JEL Classification

D71, D82, D86

Inquiries

Narumi TESHIMA*
Graduate School of Economics, Keio University
Junior Research Fellow, RIEB, Kobe University

*This Discussion Paper won the Kanematsu Prize (FY 2023).