Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Sep, 2022, Volume 90, Issue 5

Experimentation and Approval Mechanisms
p. 2215-2247

Andrew McClellan

We study the design of approval rules when costly experimentation must be delegated to an agent with misaligned preferences. When the agent has the option to end experimentation, we show that in contrast to standard stopping problems, the optimal approval rule must be history‐dependent. We characterize the optimal rule and show the approval threshold moves downward over the course of experimentation. We find that private information may qualitatively change the optimal mechanism: an agent can choose a fast‐track option in the form of an initially depressed approval threshold. On expiry of the fast track, the threshold jumps up, introducing more stringent standards. Our results provide a theoretical foundation for both the loosening of approval standards on longer experimentation paths and fast‐track mechanisms.

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Supplement to "Experimentation and Approval Mechanisms"

McClellan, Andrew

This online appendix contains material not found within the manuscript.