Research

Updated: August 2024

Working Papers:

Informational versus Monetary Incentives in Learning

Principals can influence agents’ learning through informational incentives (signals) and monetary incentives (transfers). We examine the interplay between public information design by the principal and private learning by the agent. In the absence of losses in bad states, signal design is favored. However, in the presence of bad state losses, promoting learning may become optimal. When the agent firmly believes in a bad state, the principal resorts to monetary incentives for trade assurance. With intermediate beliefs, the principal uses information design to encourage learning, leading to non-monotonic trade probabilities. The effectiveness of monetary incentives may increase with signal accuracy. Compared to when only signal design is available, the principal may disclose less information (in Blackwell's sense) when both options exist. Agents may benefit from higher learning costs.

Information Design versus Auditing in Mitigating Hold-up Risks

The asymmetric information that creates an ex-ante investment incentive can limit the principal's ability to expropriate the gains from the investment at the contracting stage.  In this article, we compare the effectiveness of ex-ante signal design and after-production auditing in an adverse selection model with effort and hold-up risk.  Our results show that when and only when investment cost is low, an ex-ante signal design is preferred.  The difference in payoffs generated by these two methods depends on their ability to induce investment and the relative efficiency of the agent's effort levels in the respective contracts. When investment costs are low, a signal design contract, which involves less downward distortion of effort, results in a higher payoff for the principal. As investment cost rises, auditing becomes a better information instrument when the effect of a decreasing investment probability outweighs the impact of increased effort efficiency. When inducing investment becomes prohibitively costly, the principal may either deter investment through perfect signal design or impose a large punishment, leading to a complete hold-up.

Work in Progress:

Information and Contract Design with Heterogeneous Agents (with Fahad Khalil and Jacques Lawarrée)

On the implementation of the competitive divisions for bads (with Quan Wen)