 Wait-and-See or Step in? Dynamics of InterventionsDana Foarta and
Takuo Sugaya
Research Papers from Stanford University, Graduate School of Business Abstract: We study when and how intervention to stop a project is optimally used in a repeated relationship between a principal and a policymaker. The policymaker is privately informed about his ability, where a higher ability policymaker has a lower cost of producing a good project. He also privately chooses how much effort to supply on the project. Before the project is completed, the principal receives a signal about its outcome and can intervene to stop it from taking effect. Intervention may prevent a bad outcome, but no intervention leads to better learning about the policymaker’s ability. In the benchmark with observable effort, it is optimal to intervene only when the policymaker’s reputation is sufficiently low. If effort is not observable, the optimal response features switching between intervention and no intervention on the equilibrium path. The model rationalizes intervention technologies implemented in practice by supranational agreements and governing coalitions. JEL-codes: D78 D82 H77 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3736 Access Statistics for this paper More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC. |
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