Delegation as a signal: implicit communication with full cooperation

Published:

The paper examines the issue of implicit signaling of inexpressible type through delegation in a communication game with perfectly aligned preferences, two-sided private information and communication frictions. The model is analyzed in the context of medical decision-making. A patient (principal) comes to a doctor’s (agent’s) office to choose one of two treatments that would suit his health needs. The patient perfectly knows, but cannot communicate his preference type and may acquire some informative, but imperfect and costly signal about his health. After observing the signal, he may choose the treatment or delegate the decision to the doctor, who observes the health perfectly. Even if the patient information acquisition and the signal are unobservable to the doctor, the patient’s delegation choice, combined with the doctor’s private information, allow the latter to extract some signal about the inexpressible preference type. I show that for a large class of parameters there exists an equilibrium, in which the doctor, basing on his information and the delegation decision can correctly understand cues about preferences and tailor the final treatment to the patient’s needs. In particular the doctor’s final decision (upon delegation) may be non-monotone in health.