Contract for Signaling : Coexisting with Biased Leader

We model a situation where a leader appearing to seek advises from expert may be of two types: an objective type who is genuinely seeking advise for action, and a biased type who is predetermined to certain action while pretending to seek advises for a reputation of being open-minded. To motivate expert to acquire information about the state, the objective leader commits to a contract that rewards the expert conditional on his reported message, but the biased leader who desires a reputation of being objective may mimic the contract offer, hence the contract motivates information acquisition also by separating the objective leader from the biased one. We show that in a semi-separating equilibrium, the objective leader is worse-off if the reputational rent of the biased leader gets higher. We also examine a series of comparative statics results and extend the model in various directions