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Contracting for information under imperfect commitment

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  • Vijay Krishna
  • John Morgan

Abstract

We study optimal contracting under imperfect commitment in a model with an uninformed principal and an informed agent. The principal can commit to pay the agent for his advice but retains decision-making authority. Under an optimal contract, the principal should (i) never induce the agent to fully reveal what he knows-even though this is feasible-and (ii) never pay the agent for imprecise information. We compare optimal contracts under imperfect commitment to those under full commitment as well as to delegation schemes. We find that gains from contracting are greatest when the divergence in the preferences of the principal and the agent is moderate. Copyright (c) 2008, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 4 ()
Pages: 905-925

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Handle: RePEc:bla:randje:v:39:y:2008:i:4:p:905-925

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  1. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
  2. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-98, July.
  3. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
  4. Gilligan, Thomas W & Krehbiel, Keith, 1987. "Collective Decisionmaking and Standing Committees: An Informational Rationale for Restrictive Amendment Procedures," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 287-335, Fall.
  5. Prendergast, Canice, 1993. "A Theory of "Yes Men."," American Economic Review, American Economic Association, vol. 83(4), pages 757-70, September.
  6. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
  7. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
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