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

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Little White Lies

Tymofiy Mylovanov*, Nicolas Klein

Date: 2011-05-15 12:00 pm – 12:30 pm
Last modified: 2011-04-09

Abstract


This paper deals with the problem of providing adequate incentives to an expert who might be tempted to conceal his real opinion on account of career concerns. The crucial departure from the existing literature is that the expert is consulted repeatedly. We show that if a competent expert never makes mistakes, the incentive problem will disappear if the interaction lasts long enough. For shorter time horizons, the incentive problem is optimally addressed by the expert’s accumulating some private information about his abilities. If, however, even a competent expert occasionally makes mistakes, the incentive problem becomes more severe and, in particular, it does not vanish as the time horizon increases.