Paying and Persuading (opens in new tab)

I study dynamic contracting where Sender privately observes a Markovian state and seeks to motivate Receiver, who acts. Sender provides incentives in two ways: payments, which alter payoffs ex-post, and (Bayesian) persuasion, which shapes Receiver interim beliefs about payoffs. For all stage game payoffs, discount rates, and Markov transition rules, transfers are a last resort--there is an optimal contract where payments occur only after Sen...