24 Pages Posted: 8 Mar 1999
Date Written: November 1998
In this paper the impact of noise on dynamic adverse selection in principal-agent 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 loose 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. At the same time, the principal manipulates the signal distribution to enhance the principal's ability to learn about the agent's type.
JEL Classification: D8, C73
Suggested Citation: Suggested Citation
Jeitschko, Thomas D. and Mirman, Leonard J., Information and Experimentation in Short-Term Contracting (November 1998). Available at SSRN: https://ssrn.com/abstract=149311 or http://dx.doi.org/10.2139/ssrn.149311