DP16896 Contracting over Persistent Information

Author(s): Claudio Mezzetti, Ludovic Renou, Tristan Tomala, Wei Zhao
Publication Date: January 2022
Programme Areas: Organizational Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16896

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.