Contracting for Research: Moral Hazard and the Incentive to Overstate Significance

34 Pages Posted: 29 Aug 2018 Last revised: 29 May 2019

See all articles by Samuel Häfner

Samuel Häfner

University of Basel

Curtis R. Taylor

Duke University - Department of Economics

Date Written: May 27, 2019

Abstract

The incentives for an agent first to diligently conduct research and second to accurately report her results are investigated in a model of optimal contracting. To motivate the agent to collect and analyze the relevant data, her compensation must include a contingent component that depends on whether her reported findings are ultimately consistent with the outcome of the principal's project. This endogenously creates incentives for the agent to overstate the significance of her findings (positive or negative). To restore incentives for honest reporting, the agent must receive a non-contingent payment that is decreasing in the reported strength of her findings. The principal mitigates expected agency rents by bunching all positive reports beyond a critical level of significance and all negative reports beyond a critical level. Hence, the principal potentially under-utilizes the information obtained by the agent. This continues to hold even in a setting where the principal cannot commit to ignore reports of extreme research outcomes.

Keywords: information acquisition, p-hacking, reporting bias, scoring rule

JEL Classification: C73, D81, D82, D86, L14

Suggested Citation

Häfner, Samuel and Taylor, Curtis R., Contracting for Research: Moral Hazard and the Incentive to Overstate Significance (May 27, 2019). Economic Research Initiatives at Duke (ERID) Working Paper Forthcoming. Available at SSRN: https://ssrn.com/abstract=3229927 or http://dx.doi.org/10.2139/ssrn.3229927

Samuel Häfner (Contact Author)

University of Basel ( email )

Basel
Switzerland

Curtis R. Taylor

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1827 (Phone)
919-684-8974 (Fax)

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