Discussion Paper Details

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Title: Contracting over Persistent Information

Author(s): Claudio Mezzetti, Ludovic Renou, Tristan Tomala and Wei Zhao

Publication Date: January 2022


Programme Area(s): Organizational Economics

Abstract: We consider a dynamic principal-agent problem, where the sole instrument the principal has to incentivize the agent is the disclosure of infor- mation. The principal aims at maximizing the (discounted) number of times the agent chooses the principal's preferred action. We show that there exists an optimal contract, where the principal stops disclosing information as soon as its most preferred action is a static best reply for the agent, or else con- tinues disclosing information until the agent perfectly learns the principal's private information. If the agent perfectly learns the state, he learns it in fi- nite time with probability one; the more patient the agent, the later he learns it.

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Bibliographic Reference

Mezzetti, C, Renou, L, Tomala, T and Zhao, W. 2022. 'Contracting over Persistent Information'. London, Centre for Economic Policy Research.