Contracts for Experts with Opposing Interests
We 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.
|Date of creation:||Jan 2008|
|Date of revision:||Feb 2010|
|Note:||Under review in RAND Journal of Economics|
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- 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.
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1295, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- 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.
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