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Dynamic Agency with Feedback

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  • Bart Taub

Abstract

A principal has a stochastically evolving target that he wishes an agent to repeatedly hit with his effort. The agent does not obtain utility from hitting the target and therefore attempts to shirk; the agent's utility is determined by a second process that symmetrically is of no use to the principal. The principal cannot control effort or payoffs but can transmit signals to the agent, who is relatively uninformed. The principal's optimal signal may cause the agent's labor to be highly serially correlated. This serial correlation has empirical relevance for the theory of managerial incentives and for the theory of business cycle fluctuations.

Suggested Citation

  • Bart Taub, 1997. "Dynamic Agency with Feedback," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 515-543, Autumn.
  • Handle: RePEc:rje:randje:v:28:y:1997:i:autumn:p:515-543
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    Cited by:

    1. Emir Kamenica & Matthew Gentzkow, 2011. "Bayesian Persuasion," American Economic Review, American Economic Association, vol. 101(6), pages 2590-2615, October.

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