Intertemporal Aggration

Inter-temporal aggregation results in a summarization of information and a natural delay in the release of information. We study a principal-agent model and show that inter-temporal aggregation can be an optimal feature of a performance evaluation system. We also contrast the value of additional information when existing information is inter-temporally aggregated with its value when existing information is obtained period-by-period. We observe that valuing additional information is subtle. In particular, it is possible the principal will find that an additional independent signal is valueless under inter-temporal aggregation but valuable if existing information is obtained periodically. That is, additional information can be more helpful when other information sources abound than when they are scarce.