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  3. American Economic Review
  4. August 2016
  5. Dynamic Delegation of Experimentation

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Dynamic Delegation of Experimentation

  • Yingni Guo
American Economic Review
vol. 106, no. 8, August 2016
(pp. 1969–2008)
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Abstract

I study a dynamic relationship where a principal delegates experimentation to an agent. Experimentation is modeled as a one-armed bandit that yields successes following a Poisson process. Its unknown intensity is high or low. The agent has private information, his type being his prior belief that the intensity is high. The agent values successes more than the principal does, so prefers more experimentation. The optimal mechanism is a cutoff rule in the belief space: the cutoff gives pessimistic types total freedom but curtails optimistic types' behavior. Pessimistic types over-experiment while the most optimistic ones under-experiment. This delegation rule is time consistent.

Citation

Guo, Yingni. 2016. "Dynamic Delegation of Experimentation." American Economic Review, 106 (8): 1969–2008. DOI: 10.1257/aer.20141215

Additional Materials

JEL Classification

  • D23 Organizational Behavior; Transaction Costs; Property Rights
  • D82 Asymmetric and Private Information; Mechanism Design
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • O30 Innovation; Research and Development; Technological Change; Intellectual Property Rights: General