Incentivizing Information Acquisition

TL;DR

This paper models a principal-agent scenario where the principal designs transfer payments to incentivize an agent to acquire and truthfully report high-precision information about an unknown state, under mild conditions.

Contribution

It identifies a necessary and sufficient condition on the information structure that guarantees an optimal, simple cutoff transfer scheme for incentivizing truthful high-precision reporting.

Findings

Existence of a simple cutoff transfer scheme under mild conditions

The condition applies broadly to common signal distributions

Optimal transfers can be designed without observing the signal or precision

Abstract

I study a principal-agent model in which a principal hires an agent to collect information about an unknown continuous state. The agent acquires a signal whose distribution is centered around the state, controlling the signal's precision at a cost. The principal observes neither the precision nor the signal, but rather, using transfers that can depend on the state, incentivizes the agent to choose high precision and report the signal truthfully. I identify a sufficient and necessary condition on the agent's information structure which ensures that there exists an optimal transfer with a simple cutoff structure: the agent receives a fixed prize when his prediction is close enough to the state and receives nothing otherwise. This condition is mild and applies to all signal distributions commonly used in the literature.