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Information and experimentation in short-term contracting

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Author Info

  • Leonard J. Mirman

    (Department of Economics, University of Virginia, Charlottesville, VA 22903, USA)

  • Thomas D. Jeitschko

    ()
    (Department of Economics, Michigan State University, East Lansing, MI 48824, USA)

Abstract

The impact of information dissemination and experimentation on dynamic adverse selection in noisy agency relationships is examined. Significant deviations in terms of equilibrium actions and payments occur, when compared to deterministic environments. Information dissipates slowly, so payments to agents who stand to lose informational rents over time are lower than compared to deterministic settings. Moreover, the principal manipulates the agent's actions to affect the informativeness of the signal. Thus, the principal trades-off lower initial payments with higher informational rents later. Simultaneously, the principal manipulates the signal distribution to enhance his ability to learn about the agent's type.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 19 (2002)
Issue (Month): 2 ()
Pages: 311-331

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Handle: RePEc:spr:joecth:v:19:y:2002:i:2:p:311-331

Note: Received: February 15, 2000; revised version: August 29, 2000
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Web page: http://link.springer.de/link/service/journals/00199/index.htm

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Related research

Keywords: Bayesian learning; Experimentation; Agency.;

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Cited by:
  1. Neelam Jain & Thomas D. Jeitschko & Leonard J. Mirman, 2003. "Entry Deterrence under Agency Constraints," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 2(3), pages 179-195, December.
  2. Thomas D. Jeitschko & Leonard J. Mirman & Egas Salgueiro, 2004. "The simple analytics of information and experimentation in dynamic agency," Working Papers de Economia (Economics Working Papers) 12, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  3. Neelam Jain & Leonard Mirman, 2011. "Lender learning and entry under general demand uncertainty," Review of Economic Design, Springer, vol. 15(2), pages 163-175, June.

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