Authority and communication in the laboratory

We experimentally investigate delegation and communication as two alternative means of coordinations among individuals with misaligned interests. We implement in the laboratory two delegation-communication games in which a principal chooses whether to delegate her decision-making authority to an informed agent or to make the decision herself after a cheap-talk communication with the agent. In the game in which equilibrium predicts communication over delegation, we observe that decision-making authorities are almost always retained and communication opted for. In the communication, subjects coordinate over the separating equilibrium when pooling is also consistent with equilibrium. In the game in which equilibrium predicts delegation over communication, significantly more delegations than communications are observed, although incidences of off-equilibrium-path plays are higher than those in the other game. In the off-equilibrium-path communication, relative to the unique pooling equilibrium we observe, consistent with findings in the previous literature, over-transmission of information.