Economic Theory

, Volume 19, Issue 2, pp 311–331

Information and experimentation in short-term contracting

  • Thomas D. Jeitschko
  • Leonard J. Mirman
Research Articles

DOI: 10.1007/PL00004215

Cite this article as:
Jeitschko, T. & Mirman, L. Econ Theory (2002) 19: 311. doi:10.1007/PL00004215

Summary.

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.

Keywords and Phrases: Bayesian learning, Experimentation, Agency.
JEL Classification Numbers: D8, C73.

Copyright information

© Springer-Verlag Berlin Heidelberg 2002

Authors and Affiliations

  • Thomas D. Jeitschko
    • 1
  • Leonard J. Mirman
    • 2
  1. 1.Department of Economics, Michigan State University, East Lansing, MI 48824, USA (e-mail: jeitschk@msu.edu) US
  2. 2.Department of Economics, University of Virginia, Charlottesville, VA 22903, USA US