Information and Experimentation in Short-Term Contracting

24 Pages Posted: 8 Mar 1999  

Thomas D. Jeitschko

Michigan State University - Department of Economics

Leonard J. Mirman

University of Virginia - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 1998

Abstract

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

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

Thomas D. Jeitschko (Contact Author)

Michigan State University - Department of Economics ( email )

110 Marshall-Adams Hall
East Lansing, MI 48824
United States
517-355-8302 (Phone)
517-432-1068 (Fax)

HOME PAGE: http://www.msu.edu/~jeitschk/

Leonard J. Mirman

University of Virginia - Department of Economics ( email )

1818 Winston Rd
Charlottesville, VA
United States

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