Wait-and-See or Step In? Dynamics of Interventions

B-Tier
Journal: American Economic Journal: Microeconomics
Year: 2021
Volume: 13
Issue: 1
Pages: 399-425

Authors (2)

Dana Foarta (Stanford University) Takuo Sugaya (not in RePEc)

Score contribution per author:

1.005 = (α=2.01 / 2 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

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.

Technical Details

RePEc Handle
repec:aea:aejmic:v:13:y:2021:i:1:p:399-425
Journal Field
General
Author Count
2
Added to Database
2026-01-25