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Experimentation and Approval Mechanisms

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  • Andrew McClellan

Abstract

We study the design of approval rules when costly experimentation must be delegated to an agent with misaligned preferences. When the agent has the option to end experimentation, we show that in contrast to standard stopping problems, the optimal approval rule must be history‐dependent. We characterize the optimal rule and show the approval threshold moves downward over the course of experimentation. We find that private information may qualitatively change the optimal mechanism: an agent can choose a fast‐track option in the form of an initially depressed approval threshold. On expiry of the fast track, the threshold jumps up, introducing more stringent standards. Our results provide a theoretical foundation for both the loosening of approval standards on longer experimentation paths and fast‐track mechanisms.

Suggested Citation

  • Andrew McClellan, 2022. "Experimentation and Approval Mechanisms," Econometrica, Econometric Society, vol. 90(5), pages 2215-2247, September.
    • Handle: RePEc:wly:emetrp:v:90:y:2022:i:5:p:2215-2247
    DOI: 10.3982/ECTA17021
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    References listed on IDEAS

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    1. Emeric Henry & Marco Ottaviani, 2019. "Research and the Approval Process: The Organization of Persuasion," American Economic Review, American Economic Association, vol. 109(3), pages 911-955, March.
    2. Dirk Bergemann & Ulrigh Hege, 2005. "The Financing of Innovation: Learning and Stopping," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 719-752, Winter.
    3. Thomas Balzer & Klaus Janßen, 2002. "A duality approach to problems of combined stopping and deciding under constraints," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(3), pages 431-446, June.
    4. Emeric Henry & Marco Ottaviani, 2019. "Research and the Approval Process: The Organization of Persuasion," American Economic Review, American Economic Association, vol. 109(3), pages 911-955, March.
    5. Marina Halac & Navin Kartik & Qingmin Liu, 2017. "Contests for Experimentation," Journal of Political Economy, University of Chicago Press, vol. 125(5), pages 1523-1569.
    6. Marina Halac & Navin Kartik & Qingmin Liu, 2016. "Optimal Contracts for Experimentation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(3), pages 1040-1091.
    7. Thomas Balzer & Klaus Janßen, 2002. "A duality approach to problems of combined stopping and deciding under constraints," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 55(3), pages 431-446, June.
    8. Kruse, Thomas & Strack, Philipp, 2015. "Optimal stopping with private information," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 702-727.
    9. repec:hal:spmain:info:hdl:2441/1gr6n3t28b94tafji6op8tlqs1 is not listed on IDEAS
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    Cited by:

    1. Mustapha Nyenye Issah, 2024. "Feedback strategies in the market with uncertainties," Papers 2410.16203, arXiv.org.
    2. Yingkai Li & Jonathan Libgober, 2023. "Implementing Evidence Acquisition: Time Dependence in Contracts for Advice," Papers 2310.19147, arXiv.org, revised Sep 2024.

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