Contracts for Experts with Opposing Interests

Tymofiy Mylovanov and Andriy Zapechelnyuk
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Tymofiy Mylovanov: Penn State University

No 5, Discussion Papers from Kyiv School of Economics

Abstract: We study a setting with an uninformed decision maker who has to make a decision based on recommendations of two perfectly informed experts. The experts have opposing interests: one expert prefers the lowest feasible decision, whereas the other one prefers the highest feasible decision. We provide a tool to characterize optimal mechanisms in this environment, "constant-threat principle," which states that one can restrict attention to mechanisms in which the implemented decision after a disagreement among the experts is independent of their reports. We use this principle to characterize two classes of mechanisms: the cost-efficient mechanisms that implement the decision maker's most preferred alternative at the lowest cost and the optimal mechanisms that maximize the payoff of the decision maker net of payments to the experts.

Keywords: Communication; information; experts; constant-threat principle; optimal contracts; cost-efficient contracts (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec
Date: Written 2008-01
Note: Under review in Journal of Economic Theory
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http://www.kse.org.ua/RePEc/pdf/KSE_dp5.pdf Revised version, September 2008 (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:kse:dpaper:5

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