Selling authority

This paper examines the bargaining over authority in principal–agent relationships in which a non-contractible decision must be made but decision rights are contractible and transferrable. An informed but self-interested agent makes a price offer to buy decision-making authority from an uninformed principal, who then decides to either accept or reject the offer. No matter how large the difference is between the parties’ preferences, there exists a continuum of perfect Bayesian equilibria in which authority is transferred with a probability of 1. In these equilibria, no information is transmitted, even though the informed agent's price offers could have been used as a signaling device. However, we also construct an infinite sequence of informative equilibria that approximates the full revelation of information in any state of nature in the limit.

► A bargaining over authority in principal–agent relationships. ► Contractible and transferable decision rights. ► Existence of perfect Bayesian equilibria in which authority is transferred with a probability of 1. ► Informative equilibria that approximate full revelation of information in any state of nature in the limit.