Contracting for Experimentation with Private Findings

Hongcheng Li

Papers from arXiv.org

Abstract: A principal hires an agent to work on a project of unknown quality. Success is contractible, but before it occurs, the agent may privately obtain a favorable finding. For example, a scientist developing a drug may observe a promising microscope reading. An informed agent may conceal the finding; an uninformed agent may fake one. The agent's private information could guide both the project's duration and his pay. Yet I show that an optimal contract pays only success bonuses tied to time, not reported findings, consistent with time-based payment schedules often used in research funding. Dynamically arriving private information drives this simplicity: the agent can conceal good news to retain higher bonuses, so deterring concealment limits pay differences across report histories. Bonuses are high and rising in a research stage that induces learning, then fall to a low, constant level in a development stage where only an informed agent continues working. Rising bonuses reflect a novel force: rents from private learning motivate effort but shrink as fewer research periods remain.

Date: 2026-10
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