Summary.
The dynamics of a stochastic, two–period principal–agent relationship is studied. The agent's type remains the same over time. Contracts are short term. The principal designs the second contract, taking the information available about the agent after the first period into account.
Compared to deterministic environments significant changes emerge: First, fully separating contracts are optimal. Second, the principal has two opposing incentives when designing contracts: the principal ‘experiments,’ making signals more informative; yet dampens signals, thereby reducing up–front payments. As a result, ‘good’ agents' targets are ratcheted over time.
Similar content being viewed by others
Author information
Authors and Affiliations
Additional information
Received: November 28, 2000; revised version: December 1, 2000
Rights and permissions
About this article
Cite this article
Jeitschko, T., Mirman, L. & Salgueiro, E. The simple analytics of information and experimentation in dynamic agency. Econ Theory 19, 549–570 (2002). https://doi.org/10.1007/s001990000156
Issue Date:
DOI: https://doi.org/10.1007/s001990000156