Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/150294
Authors: 
Klein, Nicolas
Year of Publication: 
2016
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 11 [Year:] 2016 [Issue:] 3 [Pages:] 773-811
Abstract: 
This paper analyzes the case of a principal who wants to provide an agent with proper incentives to explore a hypothesis that can be either true or false. The agent can shirk, thus never proving the hypothesis, or he can avail himself of a known technology to produce fake successes. This latter option either makes the provision of incentives for honesty impossible or does not distort its costs at all. In the latter case, the principal will optimally commit to rewarding later successes even though he only cares about the first one. Indeed, after an honest success, the agent is more optimistic about his ability to generate further successes. This, in turn, provides incentives for the agent to be honest before a first success.
Subjects: 
Dynamic moral hazard
continuous-time principal-agent models
optimal incentive scheme
experimentation
bandit models
Poisson process
Bayesian learning
JEL: 
C79
D82
D83
O32
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0/
Document Type: 
Article

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