We analyse the design of decision rules by a principal who faces an informed but biased agent and who is unable to commit to contingent transfers. The contracting problem reduces to a delegation problem in which the principal commits to a set of decisions from which the agent chooses his preferred one. We characterize the optimal delegation set and perform comparative statics on the principal's willingness to delegate and the agent's discretion. We also provide conditions for interval delegation to be optimal and show that they are satisfied when the agent's preferences are sufficiently aligned. Finally, we apply our results to the regulation of a privately informed monopolist and to the design of legislatives rules.

A manager and a worker are in an infinitely repeated relationship in which the manager privately observes her opportunity costs of paying the worker. We show that the optimal relational contract generates periodic conflicts during which effort and expected profits decline gradually but recover instantaneously. To manage a conflict, the manager uses a combination of informal promises and formal commitments that evolves with the duration of the conflict. Finally, we show that liquidity constraints limit the manager's ability to manage conflicts but may also induce the worker to respond to a conflict by providing more effort rather than less. (JEL C73, D74, D86, J33, J41, M12)

This paper compares centralized and decentralized coordination when managers are privately informed and communicate strategically. We consider a multidivisional organization in which decisions must be adapted to local conditions but also coordinated with each other. Information about local conditions is dispersed and held by self-interested division managers who communicate via cheap talk. The only available formal mechanism is the allocation of decision rights. We show that a higher need for coordination improves horizontal communication but worsens vertical communication. As a result, decentralization can dominate centralization even when coordination is extremely important relative to adaptation. (JEL D23, D83, L23, M11)

Products are increasingly made by assembling separately produced modules. Motivated by the notion that a firm’s production function drives its organization, we explore how modular production shapes a firm’s communication structure. Decisions are partitioned into modules and require closer coordination within modules than across. Each agent knows the state his decision must be adapted to. The principal decides whom each agent tells about his state, given that each communication link comes at a cost. We show that optimal communication networks follow a simple threshold rule and exhibit the threshold property. We discuss comparative statics, applications, and empirical implications.

Expert advice often extends beyond a simple recommendation, including information about alternative options. To explore the role of this referential advice, we enrich the expert’s informational advantage in a canonical model of communication with hard information. We show that when constructed just right, referential advice dissuades the decision maker from choosing options other than the recommendation, thereby making the recommendation itself more persuasive. We identify an equilibrium in which, with probability 1, the expert is strictly better off providing referential advice than she is in any equilibrium in which she provides a recommendation alone.