Transfer of Authority within Hierarchy1

Bureaucracy is featured by vertical hierarchical structure in which the decision maker usually lacks direct access to the informed agent, and the span of discretionary authority decreases top down. In this paper we investigate the delegation scheme in three-level hierarchies. The minister delegates authority to a biased senior bureaucrat, then the senior can make further delegation decision to the junior. We provide a full characterization of the implemented interval delegation set. It’s shown that the e¢ ciency is attained if and only if the senior is intermediately biased. We reverse the conclusion in Dessein (2002) that delegation dominates informative cheap talk and shows that, for some range of senior’s preferences, the minister prefers keeping control and using the senior as information gate-keeper. The implication for hiring policy, job contents and promotion decision in bureaucracy is examined. Given the bias of the senior, the optimal junior should be intermediately between the senior and the minister. Under certain conditions the loyal bureaucrat would be assigned to action-level and doesn’t get promotion. Complete delegation to an acquainted knowledgeable senior may arise endogenously by the minister’s ignorance about the con‡ict of interest of the junior. Key words: Delegation, Cheap Talk, Bureaucracy, Mediator, Hierarchy JEL classi…cation codes: D72, D78, D82 The principles of o¢ ce hierarchy and of levels of graded authority mean a …rmly ordered system of superand subordination in which there is a supervision of the lower o¢ ces by the higher ones. — — — Max Weber (1946, p. 214)