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Contracts for Experts with Opposing Interests

Tymofiy Mylovanov () and Andriy Zapechelnyuk

No 5, Discussion Papers from Kyiv School of Economics

Abstract: We study the problem of optimal contract design in an environment with an uninformed decision maker and two perfectly informed experts. We characterize optimal contracts and observe that consulting two experts rather than one is always beneficial; this is so even if the bias of a second expert is arbitrary large and this expert would have no value in a cheap talk environment. We also provide conditions under which these contracts implement the first best outcome; our sufficient condition is weaker than the conditions in the literature on the environments without commitment. In order to derive optimal contracts, we prove a Òconstant-threatÓ result that states that one can restrict attention to contracts in which the action implemented in case of a disagreement among the experts is independent of their reports. A particular implication of this result is that an optimal contract is constant for a large set of expertsÕ preferences and hence is robust to mistakes in their specification.

Keywords: information; optimal contracts; experts; constant-threat principle (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: 2008-01, Revised 2010-02
Note: Under review in RAND Journal of Economics
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http://repec.kse.org.ua/pdf/KSE_dp5.pdf Revised version, February 2010 (application/pdf)

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