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1. (EC.17) ˆ Jp(d0) = πw (d0 + δ∗ )x∗ 2h + π̄w (d0 + δ∗ )x∗ 2` − κ. (EC.18) The optimization problem of ˆ J2a in (EC.12) corresponds to minimizing the expected payment while motivating the provider to exert effort. The following proposition (based on Laffont and Martimort 2009, Proposition 4.2) provides the corresponding optimal payments. Proposition EC.10. Given dataset size d1, the unique optimal payments for Problem (EC.12) are x∗ 2` = 0 and x∗ 2h = κ/[πw(d1) − πs(d1)]. The firm’s optimal expected profit is then ˆ J2a(α`,d1) = πw(d1)ταh + π̄w(d1)τα` − κ ρ(d1) and ˆ J2a(αh,d1) = ταh . (EC.19) where κ/ρ(d1) is the expected payment to the provider.
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