Learning to game the system

Toward a Theory of Discounted Repeated Games with Imperfect Monitoring

Jin Li, Arijit Mukherjee and Luis Vasconcelos ()

The Review of Economic Studies, 2021, vol. 88, issue 4, 2014-2041

Abstract: An agent may privately learn which aspects of his job are more important by shirking on some of them, and use that information to shirk more effectively in the future. In a model of long-term employment relationship, we characterize the optimal relational contract in the presence of such learning-by-shirking and highlight how the performance measurement system can be managed to sharpen incentives. Two related policies are studied: intermittent replacement of existing measures, and adoption of new ones. In spite of the learning-by-shirking effect, the optimal contract is stationary, and may involve stochastic replacement/adoption policies that dilute the agent’s information rents from learning how to game the system.

Keywords: Performance evaluation systems; Learning; Gaming; Relational contracts; C73; D83; M52 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:88:y:2021:i:4:p:2014-2041.

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