Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22968
Authors: 
Kovac, Eugen
Mylovanov, Tymofiy
Year of Publication: 
2006
Series/Report no.: 
Bonn econ discussion papers 2006,23
Abstract: 
We study relative performance of stochastic and deterministic mechanisms in a principal-agent model with hidden information and no monetary transfers. We present an example in which stochastic mechanisms perform strictly better than deterministic ones and can implement any outcome arbitrarily close to the first-best. Nevertheless, under the common assumption of quadratic payoffs and a certain regularity condition on the distribution of private information and the agent's bias, the optimal mechanism is deterministic. We provide an explicit characterization of this mechanism.
Subjects: 
optimal delegation
cheap talk
principal-agent relationship
no monetary transfers
stochastic mechanisms
JEL: 
M54
L22
D82
D78
Document Type: 
Working Paper

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