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Information and experimentation in short-term contracting

  • 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)

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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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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