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The Importance of Commitment Power in Games with Imperfect Evidence†

The Importance of Commitment Power in Games with Imperfect Evidence† AbstractThe literature initiated by Green and Laffont (1986) studies principal-agent models with hard evidence. Evidence is modeled by assuming that the message set of the agent is type dependent. In this setup, Glazer and Rubinstein (2004, 2006) and Sher (2011) show that when the agent’s utility function is type independent there is no advantage for the principal in having commitment power. This paper shows that this way of modeling evidence implicitly assumes it to be perfectly accurate and that the result that commitment power has no value is not robust to making the evidence imperfect. (JEL C70, D82) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

The Importance of Commitment Power in Games with Imperfect Evidence†

The Importance of Commitment Power in Games with Imperfect Evidence†

American Economic Journal: Microeconomics , Volume 12 (4) – Nov 1, 2020

Abstract

AbstractThe literature initiated by Green and Laffont (1986) studies principal-agent models with hard evidence. Evidence is modeled by assuming that the message set of the agent is type dependent. In this setup, Glazer and Rubinstein (2004, 2006) and Sher (2011) show that when the agent’s utility function is type independent there is no advantage for the principal in having commitment power. This paper shows that this way of modeling evidence implicitly assumes it to be perfectly accurate and that the result that commitment power has no value is not robust to making the evidence imperfect. (JEL C70, D82)

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Publisher
American Economic Association
Copyright
Copyright © 2020 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20180038
Publisher site
See Article on Publisher Site

Abstract

AbstractThe literature initiated by Green and Laffont (1986) studies principal-agent models with hard evidence. Evidence is modeled by assuming that the message set of the agent is type dependent. In this setup, Glazer and Rubinstein (2004, 2006) and Sher (2011) show that when the agent’s utility function is type independent there is no advantage for the principal in having commitment power. This paper shows that this way of modeling evidence implicitly assumes it to be perfectly accurate and that the result that commitment power has no value is not robust to making the evidence imperfect. (JEL C70, D82)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2020

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