Delegated Contracting

Abstract: A principal seeks to contract with an agent but must do so through an informed delegate. Although the principal cannot directly mediate the interaction, she can constrain the menus of contracts the delegate may offer. We show that the principal can implement any outcome that is implementable through a direct mechanism satisfying dominant strategy incentive compatibility and ex-post participation for the agent. We apply this result to several settings. First, we show that a government that delegates procurement to a budget-indulgent agency should delegate an interval of screening contracts. Second, we show that a seller can delegate sales to an intermediary without revenue loss, provided she can commit to a return policy. Third, in contrast to centralized mechanism design, we demonstrate that no partnership can be efficiently dissolved in the absence of a mediator. Finally, we discuss when delegated contracting obstructs efficiency, and when choosing the right delegate may help restore it.