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Dynamic Delegation of Experimentation

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  • Yingni Guo

Abstract

I study a dynamic relationship where a principal delegates experimentation to an agent. Experimentation is modeled as a one-armed bandit that yields successes following a Poisson process. Its unknown intensity is high or low. The agent has private information, his type being his prior belief that the intensity is high. The agent values successes more than the principal does, so prefers more experimentation. The optimal mechanism is a cutoff rule in the belief space: the cutoff gives pessimistic types total freedom but curtails optimistic types' behavior. Pessimistic types over-experiment while the most optimistic ones under-experiment. This delegation rule is time consistent.

Suggested Citation

  • Yingni Guo, 2016. "Dynamic Delegation of Experimentation," American Economic Review, American Economic Association, vol. 106(8), pages 1969-2008, August.
    • Handle: RePEc:aea:aecrev:v:106:y:2016:i:8:p:1969-2008
    Note: DOI: 10.1257/aer.20141215
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    References listed on IDEAS

    as
    1. Nicolas Klein & Sven Rady, 2011. "Negatively Correlated Bandits," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(2), pages 693-732.
    2. Gomes, Renato & Gottlieb, Daniel & Maestri, Lucas, 2016. "Experimentation and project selection: Screening and learning," Games and Economic Behavior, Elsevier, vol. 96(C), pages 145-169.
    3. Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2007. "Social Learning in One-Arm Bandit Problems," Econometrica, Econometric Society, vol. 75(6), pages 1591-1611, November.
    4. Mylovanov, Tymofiy, 2008. "Veto-based delegation," Journal of Economic Theory, Elsevier, vol. 138(1), pages 297-307, January.
    5. Bruno Strulovici, 2010. "Learning While Voting: Determinants of Collective Experimentation," Econometrica, Econometric Society, vol. 78(3), pages 933-971, May.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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