Optimal contracts for experimentation
21 Mar 2016 The optimal bonus contract can be viewed as a simple “sale-with-buyback contract”: the principal sells the project to the agent at the outset for 21 Mar 2016 Abstract. This paper studies a model of long-term contracting for experimentation. We consider a principal–agent relationship with adverse 3 Sep 2018 An optimal contract uses the length of experimentation, the production scale, and the timing of payments to screen the agents. Due to the 16 Nov 2016 An optimal contract uses the timing of payments, the length of experimentation, and the output to screen the agent. To induce revelation during Our model permits an explicit characterization of optimal contracts. Key words'. Innovation, Learning, Adverse selection, Moral hazard. JEL Codes-. D82, D83, D86.
Optimal Contract under Moral Hazard with Soft Information by Guillaume Roger. Published in volume 5, issue 4, pages 55-80 of American Economic Journal:
This paper studies long-term contracts for experimentation in a principal-agent setting with adverse selection (pre-contractual hidden information) about the agent’s ability, dynamic moral hazard, and private learning about project quality. We show that profit maximization by the principal generally leads to under-experimentation by an agent of low ability, even though there would be no distortion in the absence of either adverse selection or moral hazard. The structure of optimal An optimal contract uses the length of experimentation, the production scale, and the timing of payments to screen the agents. Due to the presence of an optimal production decision after experimentation, we find over-experimentation to be optimal. The asymmetric information generated during experimentation makes over-production optimal. An efficient type is rewarded early since he is more likely to succeed in experimenting, while an inefficient type is rewarded at the very end of the The structure of optimal contracts is shaped by a variety of considerations including dynamic agency costs and the possibility of post-contractual hidden information about project quality. We derive two explicit menus of contracts that can be used to implement the secondbest solution: “bonus contracts ” and “clawback contracts”. This paper studies a model of long-term contracting for experimentation. We consider a principal-agent relationship with adverse selection on the agent’s ability, dynamic moral hazard, and private learning about project quality. We find that each of these elements plays an essential role in structuring dynamic incentives, and it is only their interaction that generally precludes efficiency. We derive the optimal contract for both experimentation and exploitation in a setting in which the agent has private information about his expertise in the experimentation phase. Private information in the experimentation phase generates asymmetric infor- mationintheexploitationphase.
16 Nov 2016 An optimal contract uses the timing of payments, the length of experimentation, and the output to screen the agent. To induce revelation during
5 Jan 2014 The literature on contracts for experimentation focuses mainly on It follows that in the optimal contract the agents have to be given information OPTIMAL CONTRACTS FOR EXPERIMENTATION 1041 analytical issues, with each element playing a role in structuring dynamic incentives. Their interaction affects social efficiency: the principal typically maximizes profits by inducing an agent of low ability to end experimentation inefficiently early, even though there would be no By Step 4, an optimal contract for the low type that solves program [RP2] can be found by optimizing over TL, i.e. the length of connected penalty contracts with the penalty structure l¯L(TL). By Theorem 2, TL≤tL. In this step, we establish generic uniqueness of the optimal contract for the low type. determined by the length of the experimentation stage. An optimal contract uses the timing of payments, the length of experimentation, and the output to screen the agent. To induce revelation during the experimentation, the principal utilizes the stochastic structure of asymmetric learning by agents with different skills. HALAC ETAL OPTIMAL CONTRACTS FOR EXPERIMENTATION 1041 analytical issues, with each element playing a role in structuring dynamic incentives. Their interaction affects social efficiency: the principal typically maximizes profits by inducing an agent of low ability to end experimentation inefficiently early, even though there would be no
consequence of this asymmetry, the optimal warranty contract is given by a full- coverage warranty applied to a short time interval. In such a way the warranty
1 Nov 2012 Optimal Contracts for Experimentation. Marina Halac, Qingmin Liu, Navin Kartik. Discussion Paper No.: 1213-17. Department of Economics. 10 Jul 2018 Under this contract, the principal can implement first-best experimentation and incentivise all agents to work until the optimal stopping time. In economics, contract theory studies how economic actors can and do construct contractual One prominent application of it is the design of optimal schemes of managerial compensation. In the field of economics, the first formal treatment of In solving the optimal contract with learning, we need the information rent as the second state Consider the following thought experiment. Suppose that at time consequence of this asymmetry, the optimal warranty contract is given by a full- coverage warranty applied to a short time interval. In such a way the warranty Keywords: Agency Contracts, Optimal Incentives, Moral Hazard, Risk Aversion, Het the principal's optimal contract choice in which she must balance the the Rand Health Insurance Experiment,”European Economic Review 42 (3), 499-513 We study the canonical one-shot moral hazard problem in a lab experiment. An optimal contract induces the agent to choose high effort and yields expected
Optimal Contract under Moral Hazard with Soft Information by Guillaume Roger. Published in volume 5, issue 4, pages 55-80 of American Economic Journal:
We study the canonical one-shot moral hazard problem in a lab experiment. An optimal contract induces the agent to choose high effort and yields expected Optimal Contract under Moral Hazard with Soft Information by Guillaume Roger. Published in volume 5, issue 4, pages 55-80 of American Economic Journal: terminate entrepreneur. These features arise as part of the optimal contract for a multistage We do not study learning or experimentation, e.g.,. ▷ Levitt and of the regulatory contract affects how much information is gleaned. Keywords: Dynamic Contracts, Dynamic Agency, Ratchet Effect, Experimentation, been studied in settings such as piece-rate incentive contracts (Gibbons (1987)), optimal. 5 Jan 2014 The literature on contracts for experimentation focuses mainly on It follows that in the optimal contract the agents have to be given information OPTIMAL CONTRACTS FOR EXPERIMENTATION 1041 analytical issues, with each element playing a role in structuring dynamic incentives. Their interaction affects social efficiency: the principal typically maximizes profits by inducing an agent of low ability to end experimentation inefficiently early, even though there would be no By Step 4, an optimal contract for the low type that solves program [RP2] can be found by optimizing over TL, i.e. the length of connected penalty contracts with the penalty structure l¯L(TL). By Theorem 2, TL≤tL. In this step, we establish generic uniqueness of the optimal contract for the low type.
We study the canonical one-shot moral hazard problem in a lab experiment. An optimal contract induces the agent to choose high effort and yields expected Optimal Contract under Moral Hazard with Soft Information by Guillaume Roger. Published in volume 5, issue 4, pages 55-80 of American Economic Journal: terminate entrepreneur. These features arise as part of the optimal contract for a multistage We do not study learning or experimentation, e.g.,. ▷ Levitt and of the regulatory contract affects how much information is gleaned. Keywords: Dynamic Contracts, Dynamic Agency, Ratchet Effect, Experimentation, been studied in settings such as piece-rate incentive contracts (Gibbons (1987)), optimal.