Delegation Using Forward Induction

This paper explores how delegation can be used as a signal to sustain cooperation. I consider static principal–agent model with two tasks, one resembling coordination game. If there is asymmetric information about the agent’s type, principal high private belief delegate first task signal. also supported by forward induction argument. However, in laboratory setting, this equilibrium chosen only sometimes. When subjects have past sessions, significant increase use of delegation. finding sheds light on selection Bayesian games.