Contracts for Experts with Opposing Interests
AbstractWe study the problem of optimal contract design in an environment with an uninformed decision maker and two perfectly informed experts. We characterize optimal contracts and observe that consulting two experts rather than one is always beneficial; this is so even if the bias of a second expert is arbitrary large and this expert would have no value in a cheap talk environment. We also provide conditions under which these contracts implement the first best outcome; our sufficient condition is weaker than the conditions in the literature on the environments without commitment. In order to derive optimal contracts, we prove a Òconstant-threatÓ result that states that one can restrict attention to contracts in which the action implemented in case of a disagreement among the experts is independent of their reports. A particular implication of this result is that an optimal contract is constant for a large set of expertsÕ preferences and hence is robust to mistakes in their specification.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Kyiv School of Economics in its series Discussion Papers with number 5.
Date of creation: Jan 2008
Date of revision: Feb 2010
Note: Under review in RAND Journal of Economics
Contact details of provider:
Postal: 13 Yakira Str, 04119 Kyiv
Web page: http://www.kse.org.ua/
More information through EDIRC
information; optimal contracts; experts; constant-threat principle;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
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.:
- Krishna, V. & Morgan, J., 1999.
"A Model of Expertise,"
206, Princeton, Woodrow Wilson School - Public and International Affairs.
- Vijay Krishna & John Morgan, 1999. "A Model of Expertise," Game Theory and Information 9902003, EconWPA.
- Vijay Krishna & John Morgan, 1999. "A Model of Expertise," Working Papers dp206.pdf, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
- Takahashi, Satoru & Ambrus, Attila, 2008.
"Multi-Sender Cheap Talk with Restricted State Spaces,"
3200263, Harvard University Department of Economics.
- Ambrus, Attila & Takahashi, Satoru, 2008. "Multi-sender cheap talk with restricted state spaces," Theoretical Economics, Econometric Society, vol. 3(1), March.
- Marco Battaglini, 2000.
"Multiple Referrals and Multidimensional Cheap Talk,"
Econometric Society World Congress 2000 Contributed Papers
1557, Econometric Society.
- Marco Battaglini, 2002. "Multiple Referrals and Multidimensional Cheap Talk," Econometrica, Econometric Society, vol. 70(4), pages 1379-1401, July.
- Marco Battaglini, 1999. "Multiple Referrals and Multidimensional Cheap Talk," Discussion Papers 1295, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Austen-Smith David, 1993. "Interested Experts and Policy Advice: Multiple Referrals under Open Rule," Games and Economic Behavior, Elsevier, vol. 5(1), pages 3-43, January.
- Gilat Levy & Ronny Razin, 2007. "On the Limits of Communication in Multidimensional Cheap Talk: A Comment," Econometrica, Econometric Society, vol. 75(3), pages 885-893, 05.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Olena Nizalova).
If references are entirely missing, you can add them using this form.