“Leaks, Sabotage, and Information Design” by Dr. Erik Madsen
Dr. Erik Madsen
Department of Economics
New York University
We study optimal dynamic information disclosure by a principal to an agent of uncertain loyalty who may engage in hidden undermining, for instance through damaging leaks or sabotage. The agent requires information to correctly perform a task but may also covertly commit destructive acts which are only stochastically detectable. The principal optimally provides inconclusive incremental guidance until a deterministic time when the agent is deemed trusted and given a conclusive final report. Disloyal agents are never given incentives to feign loyalty, and in the unique time-consistent implementation undermine with variable, non-monotonic intensity over the lifetime of employment.