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Explore a dynamic games seminar presentation on signaling effort in principal-agent relationships. Delve into a model where only information messages are contractible, and agents can design signals about their effort. Examine how principals may access outside signals beyond the agent's control, influencing contract offers. Discover equilibrium conditions where agents' signals become informative, particularly when default contracts based solely on outside signals impose severe, likely punishments. Learn how optimal and informative signals provide weak evidence of high effort and strong evidence of low effort. Investigate the counterintuitive finding that principals don't always benefit from more precise outside signals. Gain insights into this research conducted by Noémie Cabau from Corvinus University, Hungary, in collaboration with Arseniy Samsonov, presented at the GERAD Research Center's Dynamic Games and Applications Seminar.
