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Uncertainty and information accuracy in adverse selection

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  • Pereira, Samuel C.A.
  • Sousa, Paulo S.A.

Abstract

We extend Lewis and Sappington [Lewis, T., Sappington, D., 1991, All-or-nothing information control, Economics Letters 37, 111-113] analysis by exploring the effect of the uncertainty about the state of nature on the principal decision with respect to the signal, perfect or imperfect, the agent receives. We show that when the principal output elasticity of value is not too low, there is a level of uncertainty that separates the two cases.

Suggested Citation

  • Pereira, Samuel C.A. & Sousa, Paulo S.A., 2008. "Uncertainty and information accuracy in adverse selection," Economics Letters, Elsevier, vol. 100(3), pages 321-325, September.
    • Handle: RePEc:eee:ecolet:v:100:y:2008:i:3:p:321-325
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    References listed on IDEAS

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    1. Lewis, Tracy R. & Sappington, David E. M., 1991. "All-or-nothing information control," Economics Letters, Elsevier, vol. 37(2), pages 111-113, October.
    2. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Strategic Information Gathering before a Contract Is Offered," Journal of Economic Theory, Elsevier, vol. 81(1), pages 163-200, July.
    3. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-930, July.
    4. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Contracts and Productive Information Gathering," Games and Economic Behavior, Elsevier, vol. 25(2), pages 174-193, November.
    5. Lewis Tracy R. & Sappington David E. M., 1993. "Ignorance in Agency Problems," Journal of Economic Theory, Elsevier, vol. 61(1), pages 169-183, October.
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