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Test Contract

Anqi Li

Washington University in Saint Louis

August 1, 2014

In dynamic agency models of imperfect public monitoring over finite T instances, one can implement near-efficient outcomes when T is large if there is a sequence of performance test statistics that has concentrated measures and is sufficiently informative of the agent's true profit contribution asymptotically. Conversely, in dynamic agency models with frequent actions, asymptotic near-efficiency obtains only if this condition is satisfied. To show these results, I construct test contracts which attain robust performances for each T under general signal processes that can depend arbitrarily on past actions and exhibit moderate serial correlation even if details of the signal process are not exactly known to the contract designer.

Number of Pages in PDF File: 38

Keywords: dynamic agency problem

JEL Classification: D86

working papers series

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Date posted: July 6, 2013 ; Last revised: August 31, 2014

Suggested Citation

Li, Anqi, Test Contract (August 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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References:  26
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