The simple analytics of information and experimentation in dynamic agency
AbstractThe dynamics of a stochastic, two-period principal-agent relationship is studied. The agent's type remains the same over time. Contracts are short term. The principal designs the second contract, taking the information available about the agent after the first period into account. Compared to deterministic environments significant changes emerge: First, fully separating contracts are optimal. Second, the principal has two opposing incentives when designing contracts: the principal `experiments,' making signals more informative; yet dampens signals, thereby reducing up-front payments. As a result, `good' agents' targets are ratcheted over time.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 19 (2002)
Issue (Month): 3 ()
Note: Received: November 28, 2000; revised version: December 1, 2000
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Other versions of this item:
- 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.
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- L5 - Industrial Organization - - Regulation and Industrial Policy
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cowles Foundation Discussion Papers
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- 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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