Noisy Agents / Francisco Espinosa, Debraj Ray.

Format:

Book

Author/Creator:

Espinosa, Francisco.

Contributor:

National Bureau of Economic Research.

Ray, Debraj.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24627.

NBER working paper series no. w24627

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

Agents signal their type in a principal-agent model; the principal seeks to retain good agents. Types are signaled with some ambient noise. Agents can choose to add or remove additional noise at a cost. It is shown that monotone retention strategies, in which the principal keeps the agent if the signal crosses some threshold, are generically never equilibria. The main result identifies an equilibrium with a bounded retention zone, in which the principal is wary of both excessively good and excessively bad signals: she retains the agent if the signal is "moderate" and replaces him otherwise. The equilibria we uncover are robust to various extensions: non-normal signal structures, non-binary types, interacting agents, costly mean-shifting, or dynamics with term limits. We discuss applications to risky portfolio management, fake news and noisy government statistics.

Notes:

Print version record

May 2018.