Incentives for Experimenting Agents


December 18, 2009


Larry Samuelson




We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The agent’s actions are hidden, and the principal, who makes the offers, cannot commit to future actions. We identify the unique Markovian equilibrium (whose structure depends on the parameters) and characterize the set of all equilibrium payoffs, uncovering a collection of non-Markovian equilibria that can Pareto dominate and reverse the qualitative properties of the Markovian equilibrium. The prospect of lucrative continuation payoffs makes it more expensive for the principal to incentivize the agent, giving rise to a dynamic agency cost. As a result, constrained efficient equilibrium outcomes call for nonstationary outcomes that front-load the agent’s effort and that either attenuate or terminate the relationship inefficiently early.

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Larry Samuelson

Larry Samuelson received his Ph. D. in economics from the University of Illinois and is now the A. Douglas Melamed Professor of Economics at Yale University. He is interested in game theory and its applications, with concentrations in evolutionary games and repeated games. “Incentives for Experimenting Agents” investigations the complications that arise in creating incentives in agency relationships that are repeated rather than isolated.