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Delegation and Information Disclosure with Unforeseen Contingencies

Author

Listed:
  • Lei Haoran

    (School of Economics and Trade, Hunan University, Changsha, China)

  • Zhao Xiaojian

    (Monash University, Clayton, Australia)

Abstract

We incorporate unawareness into the delegation problem between a financial expert and an investor, and study their pre-delegation communication. The expert has superior awareness of the possible states of the world, and decides whether to reveal some of them to the investor. We find that the expert reveals all the possible states to the investor if the investor is initially aware of a large set of possible states, but reveals partially or nothing otherwise. An investor with a higher degree of unawareness tends to delegate a larger set of projects to the expert, giving rise to a higher incentive for the expert to keep her unaware.

Suggested Citation

  • Lei Haoran & Zhao Xiaojian, 2021. "Delegation and Information Disclosure with Unforeseen Contingencies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 21(2), pages 637-656, June.
    • Handle: RePEc:bpj:bejtec:v:21:y:2021:i:2:p:637-656:n:5
    DOI: 10.1515/bejte-2018-0184
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    Citations

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    Cited by:

    1. Evan Piermont, 2023. "Iterated Revelation: How to Incentive Experts to Complete Incomplete Contracts," Papers 2304.05142, arXiv.org, revised Mar 2024.
    2. Zhengqing Gui & Yangguang Huang & Xiaojian Zhao, 2020. "Financial Fraud and Investor Awareness," HKUST CEP Working Papers Series 202002, HKUST Center for Economic Policy.

    More about this item

    Keywords

    delegation; unforeseen contingencies; unawareness; financial advice;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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