Yu Fu Wong

Dynamic Monitoring Design

Revise and Resubmit, American Economic Review

This paper introduces flexible endogenous monitoring into dynamic moral hazard. Specifically, it considers a model where a principal commits to acquiring signals that are informative about an agent's effort and to conditioning future actions on these signals. This model presents a tradeoff between monitoring and conditioning: conditioning more sensitively on less precise signals can provide identical incentives. The tradeoff is resolved by three incentive mechanisms that differ qualitatively from those under exogenous monitoring. The resulting optimal incentive scheme runs pass/fail tests against an increasingly lenient standard, and immediately terminates the agent upon a single failure.

Strategic Exploration: Preemption and Prioritization (with Qingmin Liu)

Review of Economic Studies (2024)

This paper provides a model of strategic exploration in which competing players independently explore a set of alternatives. The model features a multiple-player multiple-armed bandit problem and captures a strategic tradeoff between preemption—covert exploration of alternatives that the opponent will explore in the future—and prioritization—exploration of the most promising alternatives. Our results explain how the strategic tradeoff shapes equilibrium behaviors and outcomes, e.g., in technology races between superpowers and R&D competitions between firms. We show that players compete on the same set of alternatives, leading to duplicated search from start to finish, and they explore alternatives that are a priori less promising before more promising ones are exhausted. The model also predicts that competition induces players to implement unreliable technologies too early, even though they should wait for the technology to mature. Coordinated exploration is impossible even if the alternatives are equally promising, but it can emerge in equilibrium following a phase of preemptive competition if there is a short deadline. With asymmetric capacities of exploration, the weak player conducts extensive instead of intensive exploration—exploring as many alternatives as the strong player does but never fully exploring any.