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Too good to be truthful: Why competent advisers are fired

Christoph Schottmüller

Journal of Economic Theory, 2019, vol. 181, issue C, 333-360

Abstract: A decision maker repeatedly asks an adviser for advice. The adviser is either competent or incompetent and knows his type privately. His preferences are not perfectly aligned with the decision maker's preferences. Over time, the decision maker learns about the adviser's type and will fire him if the adviser is likely to be incompetent. If the adviser's reputation for competence improves, he is less likely to be fired for incompetence but this makes pushing his own agenda more attractive to him. Consequently, very competent advisers are also fired with positive probability because they are tempted to pursue their own goals. The quality of advice can be highest if the adviser's competence is uncertain.

Keywords: Advice; Cheap talk; Reputation (search for similar items in EconPapers)
JEL-codes: C73 D83 G24 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Too good to be truthful: Why competent advisers are fired (2016) Downloads
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