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Experimentation in Organizations

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  • Sofia Moroni

Abstract

I consider a moral hazard problem in which a principal provides incentives to a team of agents towork on a risky project. The project consists of two milestones of unknown feasibility. While workingunsuccessfully, the agents’ private beliefs regarding the feasibility of the project decline. This learningrequires the principal to provide rents to prevent the agents from procrastinating and free-riding onothers’ discoveries. To reduce these rents the principal stops the project inefficiently early and givesidentical agents asymmetric experimentation assignments. The principal prefers to reward agents withbetter contract terms or task assignments rather than monetary bonuses.

Suggested Citation

  • Sofia Moroni, 2016. "Experimentation in Organizations," Working Paper 5876, Department of Economics, University of Pittsburgh.
    • Handle: RePEc:pit:wpaper:5876
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    File URL: https://www.econ.pitt.edu/sites/default/files/working_papers/WP16-016.pdf
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    References listed on IDEAS

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    3. Jakša Cvitanić & George Georgiadis, 2016. "Achieving Efficiency in Dynamic Contribution Games," American Economic Journal: Microeconomics, American Economic Association, vol. 8(4), pages 309-342, November.
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    5. Li, Jin & Mukherjee, Arijit & Vasconcelos, Luis, 2019. "Managing performance evaluation systems: Relational incentives in the presence of learning-by-shirking," Working Papers 2018-12, Michigan State University, Department of Economics.
    6. Christoph Carnehl & Johannes Schneider, 2021. "On Risk and Time Pressure: When to Think and When to Do," Papers 2111.07451, arXiv.org, revised Mar 2022.

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