2025/03/08 by Luo, Daniel · 1 citation
#FOS: Economics and business #Theoretical Economics (econ.TH)
paper · doi:10.48550/arxiv.2503.06007
I study dynamic contracting where Sender privately observes a Markovian state and seeks to motivate Receiver, who acts. Sender provides incentives in two ways: payments, which alter payoffs ex-post, and (Bayesian) persuasion, which shapes Receiver interim beliefs about payoffs. For all stage game payoffs, discount rates, and Markov transition rules, transfers are a last resort-there is an optimal contract where payments occur only after Sender commits to reveal the state at every continuation history. In an example, the optimal contract is a loyalty program: Sender chooses the static optimal information structure until a random promotion time, after which Sender reveals the state and pays Receiver.