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Learning from Interested Parties
Unformatted Document Text:  Learning from Interested Parties Sven E. Feldmann ∗ Northwestern University Kellogg School of Management August 29, 2005 Incomplete draft Abstract Decision-makers often rely on external sources for their information such as consultants, real estate agents, or “helpful sales agents. In politics, decision makers often rely in information from interest groups. This paper ana- lyzes how much the decision-maker can learn from such interested parties— informants who themselves have a stake in the decision to be made. I show that the information provider has an incentive and the ability to withhold some information if he is not known to be fully informed. Since the decision-maker learns about some states of the world but never about others, learning from interested information providers is asymmetric. Applying the results to the problem of delegation, I show that it a legislature can elicit more information from interest groups when it delegates the decision to a bureaucrat while constraining the bureaucrat’s discretion. The paper thus extends the theory of delegation by endogenizing bureaucratic expertise, recognizing that the latter is, at least in part, the result of voluntary information revelation by interest groups. JEL classification: Keywords: Delegation, Informational Lobbying, Asymmetric Information, Sender–Receiver game ∗ MEDS Department, Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston IL 60208-2009. Email: ## email not listed ##

Authors: Feldmann, Sven.
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Learning from Interested Parties
Sven E. Feldmann
∗
Northwestern University
Kellogg School of Management
August 29, 2005
Incomplete draft
Abstract
Decision-makers often rely on external sources for their information such as
consultants, real estate agents, or “helpful sales agents. In politics, decision
makers often rely in information from interest groups.
This paper ana-
lyzes how much the decision-maker can learn from such interested parties—
informants who themselves have a stake in the decision to be made.
I show that the information provider has an incentive and the ability
to withhold some information if he is not known to be fully informed.
Since the decision-maker learns about some states of the world but never
about others, learning from interested information providers is asymmetric.
Applying the results to the problem of delegation, I show that it a legislature
can elicit more information from interest groups when it delegates the
decision to a bureaucrat while constraining the bureaucrat’s discretion. The
paper thus extends the theory of delegation by endogenizing bureaucratic
expertise, recognizing that the latter is, at least in part, the result of
voluntary information revelation by interest groups.
JEL classification:
Keywords: Delegation, Informational Lobbying, Asymmetric Information,
Sender–Receiver game
∗
MEDS Department, Kellogg School of Management, Northwestern University, 2001 Sheridan Road,
Evanston IL 60208-2009. Email: ## email not listed ##


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