Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296394 
Authors: 
Year of Publication: 
2022
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 17 [Issue:] 4 [Year:] 2022 [Pages:] 1589-1618
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
In this paper, I study the dynamic delegation problem in a principal-agent model wherein an agent privately observes a persistently evolving state, and the principal commits to actions based on the agent's reported state. There are no transfers. While the agent has state-independent preferences, the principal wants to match a state-dependent target. I solve the optimal delegation in closed form, which sometimes prescribes actions that move in the opposite direction of the target. I provide a simple necessary and sufficient condition for that to occur. Generically, the principal fares strictly better in the optimal delegation than in the babbling outcome. Over time, the principal is worse off in expectation, but the agent is better or worse off depending on the shape of the principal's state-dependent target.
Subjects: 
Brownian motion
Communication
contrarian
dynamic delegation
quota mechanism
JEL: 
D82
D83
D86
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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