Delegating Resource Allocation: Multidimensional Information vs. Decisions

This paper studies the problem of how to delegate the allocation of finite resources across multiple categories to an agent who has better information on their benefits. It focuses on a tractable, natural class of delegation policies that impose a floor or cap on the allocation to each category, a generalization of Holmström’s (1977) “interval controls” to multidimensional settings. The paper characterizes the optimal policies and shows that they can impose distorting limits on categories which cause no conflict of interest with the agent, so as to curb how the conflict in other categories affects his overall allocation. Such limits are more likely to be optimal when the conflict is weaker and the agent also has specific information on categories causing no conflict. These solutions to the trade-off between rules and discretion differ substantively from those in settings with unidimensional decisions or information. The paper discusses applications to delegation within firms, the design of fiscal constitutions and policies, and individual commitment problems. JEL CLASSIFICATION: D23, D82, D86, D91, E62, G31