Delegation as a signal: implicit communication with full cooperation

TI examine 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 decision-making in teams. A principal (manager) consults an agent (expert) to choose one of two actions. The manager has some tacit knowledge, which he cannot communicate and may acquire some imperfect, costly signal about the state of the world. After observing the signal, he may choose the action or delegate to the expert, who observes the state of the world perfectly. Even if the principal’s information acquisition and the signal are unobservable, the delegation, combined with private information, allows the agent to extract some signal about the tacit information. I show that for a large class of parameters there exists an equilibrium, in which the expert (upon delegation) can correctly understand “cues” and tailor the action to the manager’s needs. In particular, the agent’s decision may be non-monotone in the state of the world.