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Test Contract

Anqi Li

Washington University in Saint Louis

July 1, 2014

I examine a dynamic agency model of imperfect public monitoring over finite T instances where signals depend arbitrarily on past actions and exhibit moderate serial correlation. In this general environment, I propose a class of simple contracts, the test contracts, derive sharp equilibrium characterizations for each T and establish sufficient conditions for test contracts to be near-optimal when T is large. The construction makes only use of a uniform probability bound that is prescribed by concentration inequalities and a uniform payoff bound that holds naturally in many applications. The result depends on few details of the signal process and is robust even if the contract designer's knowledge about such details is incomplete.

Number of Pages in PDF File: 34

Keywords: dynamic contract; robust incentives

JEL Classification: D86

working papers series

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Date posted: July 6, 2013 ; Last revised: July 26, 2014

Suggested Citation

Li, Anqi, Test Contract (July 1, 2014). Available at SSRN: http://ssrn.com/abstract=2290373 or http://dx.doi.org/10.2139/ssrn.2290373

Contact Information

Anqi Li (Contact Author)
Washington University in Saint Louis ( email )
Department of Economics
One Brookings Drive
St. Louis, MO 63130
United States
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