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Persuading the Principal to Wait

Author

Listed:
  • Dmitry Orlov
  • Andrzej Skrzypacz
  • Pavel Zryumov

Abstract

A principal decides when to exercise a real option. A biased agent influences this decision by strategically disclosing information. Committing to disclose all information with a delay is the optimal way to persuade the principal to wait. Without dynamic commitment, this promise is credible only if the agent’s bias is small; otherwise, he pipets information, probabilistically delaying the principal’s action. When the agent is biased toward early exercise, his lack of commitment to remain quiet leads to immediate disclosure, hurting him. Our model applies to pharmaceutical companies conducting clinical trials to influence the Food and Drug Administration or equipment manufacturers testing their products.

Suggested Citation

  • Dmitry Orlov & Andrzej Skrzypacz & Pavel Zryumov, 2020. "Persuading the Principal to Wait," Journal of Political Economy, University of Chicago Press, vol. 128(7), pages 2542-2578.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/706687
    DOI: 10.1086/706687
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