Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2011

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The Importance of Being Honest

Nicolas Klein*

Date: 2011-05-14 12:00 pm – 12:30 pm
Last modified: 2011-04-09

Abstract


I analyze the case of a principal who wants to give an agent proper incentives to investigate a hypothesis which can be either true or false. The agent can shirk, thus never proving the hypothesis, or he can avail himself of a known technology to produce fake successes. If the hypothesis is false, a proper investigation never yields a success. I show that if, in the case the hypothesis is true, a proper investigation yields successes at a higher intensity than faking, the option of faking a success does not distort players' payoffs. In the opposite case, honest investigation is impossible to implement.