Disagreement and Learning in a Dynamic Contracting Model

@article{Adrian2008DisagreementAL,
  title={Disagreement and Learning in a Dynamic Contracting Model},
  author={T. Adrian and Mark M. Westerfield},
  journal={Banking \& Financial Institutions},
  year={2008}
}
We present a dynamic contracting model in which the principal and agent disagree about the resolution of uncertainty, and we illustrate the contract design in an application with Bayesian learning. The disagreement creates gains from trade that the principal realizes by transferring payment to states that the agent considers relatively more likely, changing incentives. The interaction between incentive provision and learning creates an intertemporal source of "disagreement risk" that alters… Expand
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