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American Economic Journal: Microeconomics: Vol. 3 No. 2 (May 2011)

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The Principal-Agent Approach to Testing Experts

Article Citation

Olszewski, Wojciech, and Marcin Pęski. 2011. "The Principal-Agent Approach to Testing Experts." American Economic Journal: Microeconomics, 3(2): 89-113.

DOI: 10.1257/mic.3.2.89

Abstract

Recent literature on testing experts shows that it is often impossible to determine whether an expert knows the stochastic process that generates data. Despite this negative result, we show that there often exist contracts that allow a decision maker to attain the first-best payoff without learning the expert's type. This kind of full-surplus extraction is always possible in infinite-horizon models in which future payoffs are not discounted. If future payoffs are discounted (but the discount factor tends to 1), the possibility of full-surplus extraction depends on a constraint involving the forecasting technology. (JEL D82)

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Authors

Olszewski, Wojciech (Northwestern U)
Pęski, Marcin (U TX)

JEL Classifications

D82: Asymmetric and Private Information

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