Commitment versus Flexibility with Costly Verification

S-Tier
Journal: Journal of Political Economy
Year: 2020
Volume: 128
Issue: 12
Pages: 4523 - 4573

Score contribution per author:

4.022 = (α=2.01 / 2 authors) × 4.0x S-tier

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

Abstract

A principal faces an agent who is better informed but biased toward higher actions. She can verify the agent’s information and specify his permissible actions. We show that if the verification cost is small enough, a threshold with an escape clause (TEC) is optimal: the agent either chooses an action below a threshold or requests verification and the efficient action above the threshold. For higher costs, however, the principal may require verification only for intermediate actions, dividing the delegation set. TEC is always optimal if the principal cannot commit to inefficient allocations following the verification decision and result.

Technical Details

RePEc Handle
repec:ucp:jpolec:doi:10.1086/710560
Journal Field
General
Author Count
2
Added to Database
2026-01-25