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.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
