Recent literature on testing experts shows that it is difficult, and often impossible, to determine whether an expert knows the stochastic process that generates data. Despite this negative result, we show that often exist contracts that allow a decision maker to attain the first-best payoff in the following sense: in the case in which the expert knows the stochastic process, the decision maker...

We consider a general formulation of the Principal-Agent problem with a lump-sum payment on a finite horizon. Our approach is the following: we first find the contract that is optimal among those for which the agent’s value process allows a dynamic programming representation and for which the agent’s optimal effort is straightforward to find. We then show that, under technical conditions, the o...