University / Organisation : Northwestern University

Paper or project ? paper

Title : Blame-shifting Delegation

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Abstract : Principals often delegate decisions not only to leverage expertise but also as a strategy to avoid blame—a behavior that carries important yet underexplored reputational and efficiency consequences. In this paper, we develop a signaling model in which a principal faces the choice between a safe project and a risky project, and must decide whether to retain decision rights or to delegate authority to an agent, thereby obscuring accountability for potential failures. We show that delegation serves as a form of reputation insurance, weakening the link between outcomes and the principal’s competence; while it shields the principal from blame, it also invites skepticism from observers. Consequently, low-ability principals tend to over-delegate risky projects to deflect accountability, whereas high-ability principals retain control to signal competence. In both cases, delegation increases relative to a no-reputation-concern benchmark, leading to inefficiencies as delegation motivated by blame avoidance often places lower-quality projects in less capable hands. There is an ongoing part of this paper where we show that despite these potential inefficiencies, removing the ability to delegate harms overall performance. We show that eliminating either the principal’s or agent’s role reduces the observer’s ex-ante payoff. Without delegation, principals lose access to agents’ expertise or signals about project quality. Conversely, banning delegation forces all decisions into the open, exposing low-ability principals to greater scrutiny but depriving the organization of risk-taking opportunities that skilled agents might exploit. Hierarchies, while imperfect, thus balance accountability and information gains better than flat structures.