Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2019

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Monitoring experts

Yaron Azrieli*

Date: 2019-05-03 3:45 pm – 4:15 pm
Last modified: 2019-04-14

Abstract


A decision maker faces a choice problem under uncertainty and may hire experts to collect information regarding the realized state. The experts choose how much (costly) effort to exert, which determines the quality of information they obtain. Efforts and signal realizations are unobservable; moreover, payments can’t be contingent on the realized state. The decision maker thus has to design a contract that induces the experts to ‘monitor each other’ by making payments contingent on the entire vector of reports. We characterize the information structures that the decision maker can implement. In the special case of binary states and signals we characterize the least costly contract that implements a given information structure and study the tradeoff between the value of information and its cost. In particular, we show that discriminating between the experts is a common feature of an optimal contract.

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