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Information and experimentation in short-term contracting

Author

Listed:
  • Leonard J. Mirman

    (Department of Economics, University of Virginia, Charlottesville, VA 22903, USA)

  • Thomas D. Jeitschko

    (Department of Economics, Michigan State University, East Lansing, MI 48824, USA)

Abstract

The impact of information dissemination and experimentation on dynamic adverse selection in noisy agency 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 lose 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. Simultaneously, the principal manipulates the signal distribution to enhance his ability to learn about the agent's type.

Suggested Citation

  • Leonard J. Mirman & Thomas D. Jeitschko, 2002. "Information and experimentation in short-term contracting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(2), pages 311-331.
    • Handle: RePEc:spr:joecth:v:19:y:2002:i:2:p:311-331
    Note: Received: February 15, 2000; revised version: August 29, 2000
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Neelam Jain & Thomas D. Jeitschko & Leonard J. Mirman, 2003. "Entry Deterrence under Agency Constraints," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 2(3), pages 179-195, December.
    2. Jain, Neelam, 2006. "Debt, managerial compensation and learning," European Economic Review, Elsevier, vol. 50(2), pages 377-399, February.
    3. Leonard J. Mirman & Thomas D. Jeitschko & Egas Salgueiro, 2002. "The simple analytics of information and experimentation in dynamic agency," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(3), pages 549-570.
    4. Neelam Jain & Leonard Mirman, 2011. "Lender learning and entry under general demand uncertainty," Review of Economic Design, Springer;Society for Economic Design, vol. 15(2), pages 163-175, June.

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    More about this item

    Keywords

    Bayesian learning; Experimentation; Agency.;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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