Wait-and-See or Step in? Dynamics of Interventions
Keyword(s):
We study the optimal intervention policy to stop projects in a relational contract between a principal and a policymaker. The policymaker is privately informed about his ability and privately chooses how much effort to exert. Before a project is completed, the principal receives a signal about its outcome and can intervene to stop it. Intervention may prevent a bad outcome, but no intervention leads to better learning about the policymaker’s ability. In the benchmarks with observable effort or observable ability, optimal intervention follows a threshold rule. With unobservable effort and ability, the optimal policy switches between intervention and no intervention. (JEL D78, D82, D86)
2007 ◽
Vol 29
(6)
◽
pp. 413-428
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2020 ◽
Vol 117
(44)
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pp. 27090-27095
2019 ◽
Vol 11
(2)
◽
pp. 127-170
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2021 ◽
pp. 1077-1081
Keyword(s):
Keyword(s):