Delegated Screening and Robustness

Abstract

A policymaker relies on regulators or bureaucrats to screen agents on her behalf. How can she maintain some control over the design of the screening process? She solves a two-layer mechanism design problem: she restricts the set of allowable allocations, after which a screener picks a menu that maps an agent's costly evidence to this restricted set. In general, the policymaker can set a floor in a way that dominates full delegation no matter how the screener's objectives are misaligned. When this misalignment is only over the relative importance of reducing allocation errors or agent's screening costs, the effectiveness of this restriction hinges sharply on the direction of the screener's bias. If the screener is more concerned with reducing errors, setting this floor is in fact robustly optimal for the policymaker. But if the screener is more concerned with keeping costs down, not only does this particular floor have no effect: any restriction that strictly improves over full delegation is complex and sensitive to the details of the screener's preferences. I consider the implications for regulatory governance.

Keywords: delegation, screening, principal-agent, robustness, worst-case