Contracting Experts With Unknown Cost Structures

TL;DR

This paper develops a mechanism for a principal to contract experts with unknown research costs, ensuring truthfulness and efficiency, and effectively selecting the best expert based on their research quality and costs.

Contribution

It introduces a novel mechanism linking scoring rules and auctions to handle unknown research costs in expert contracting.

Findings

Mechanism guarantees truthful reporting of costs and research quality.

Principal's utility equals the second-best expert's in-house value.

Connects scoring rules with auction theory for costly research scenarios.

Abstract

We investigate the problem of a principal looking to contract an expert to provide a probability forecast for a categorical event. We assume all experts have a common public prior on the event's probability, but can form more accurate opinions by engaging in research. Various experts' research costs are unknown to the principal. We present a truthful and efficient mechanism for the principal's problem of contracting an expert. This results in the principal contracting the best expert to do the work, and the principal's expected utility is equivalent to having the second best expert in-house. Our mechanism connects scoring rules with auctions, a connection that is useful when obtaining new information requires costly research.