On young Turks and yes men: optimal contracting for advice

Samuel Häfner and Curtis R. Taylor

RAND Journal of Economics, 2022, vol. 53, issue 1, 63-94

Abstract: We study contracting for advice by an agent about how much a principal should invest in a project. Providing the agent with incentives to perform research endogenously generates incentives for her to misreport the results. For high‐cost (low‐cost) projects, she wishes to overstate (understate) the magnitude—though not the direction—of her research findings. For high‐cost projects, the principal mitigates the concomitant agency rents by committing to ignore extreme (Young‐Turk) recommendations, whereas for low‐cost projects, he ignores mild (Yes‐Man) ones. These results are shown to be robust to several natural extensions of the model.

Date: 2022
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https://doi.org/10.1111/1756-2171.12400

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