Abstract
A principal (e.g., a bond issuer) contracts with a researcher of unknown quality (e.g., a credit rating agency) to conduct a costly experiment, either to inform the principal or to persuade a decision maker. This contracting problem has a novel feature that captures the difference between the form of an experiment and the strength of its results: researchers face a problem of information design, rather than optimal effort. Using a novel comparative static for Bayesian persuasion settings, I characterize the optimal contract and show how experimentation is distorted by adverse selection. Moreover, I show that there is no loss from contracting on the experiment’s result rather than the experiment itself. This optimal results-based contract takes the form of reimbursement for contractible costs, at a rate which is lower for stronger results, plus a (piecewise) two-part tariff.
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