Optimal Contracts for Experimentation

Optimal Contracts for Experimentation

This paper studies a model of long-term contracting for experimentation. We consider a principalagent relationship with adverse selection on the agent's ability, dynamic moral hazard, and private learning about project quality. We find that each of these elements plays an essential role in stru...

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Veröffentlicht in:The Review of economic studies 2016-07, Vol.83 (3 (296)), p.1040-1091
Hauptverfasser: HALAC, MARINA, KARTIK, NAVIN, LIU, QINGMIN
Format: Artikel
Sprache:eng
Schlagworte:
Adverse selection
Contract incentives
Economic models
Economic theory
Experimentation
Innovation adoption
Innovations
Learning
Lockouts
Logical theorems
Moral hazard
Moral hazard models
Stopping distances
Studies
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Beschreibung
Zusammenfassung:This paper studies a model of long-term contracting for experimentation. We consider a principalagent relationship with adverse selection on the agent's ability, dynamic moral hazard, and private learning about project quality. We find that each of these elements plays an essential role in structuring dynamic incentives, and it is only their interaction that generally precludes efficiency. Our model permits an explicit characterization of optimal contracts.
ISSN:0034-6527
1467-937X
DOI:10.1093/restud/rdw013