On young Turks and yes men: optimal contracting for advice

We study contracting for advice by an agent about how much a principal should invest in a project. Providing the agent with incentives to perform research endogenously generates incentives for her to misreport the results. For high-cost (low-cost) projects, she wishes to overstate (understate) the magnitude—though not the direction—of her research findings. For high-cost projects, the principal mitigates the concomitant agency rents by committing to ignore extreme (Young-Turk) recommendations, whereas for low-cost projects, he ignores mild (Yes-Man) ones. These results are shown to be robust to several natural extensions of the model.

Duke Scholars

Author Curtis R. Taylor Economics