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Contracts with endogenous information

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  • Szalay, Dezsö

Abstract

I study covert information acquisition and reporting in a principal agent problem allowing for general technologies of information acquisition. When posteriors satisfy two dimensional versions of the standard First Order Stochastic Dominance and Concavity/Convexity of the Distribution Function conditions, a first-order approach is justified. Under the same conditions, informativeness and riskiness of reports are equivalent. High powered contracts, that make the agent's informational rents more risky, are used to increase incentives for information acquisition, insensitive contracts are used to reduce incentives for information gathering. The value of information to the agent is always positive. The value of information to the principal is ambiguous.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 65 (2009)
Issue (Month): 2 (March)
Pages: 586-625

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Handle: RePEc:eee:gamebe:v:65:y:2009:i:2:p:586-625

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Web page: http://www.elsevier.com/locate/inca/622836

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Keywords: Asymmetric information Mechanism design Information acquisition Stochastic ordering Copula Value of information;

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References

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Citations

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Cited by:
  1. Johan N. M. Lagerlöf & Christoph Schottmüller, 2013. "Facilitating Consumer Learning in Insurance Markets - What Are the Welfare Effects?," Discussion Papers 13-12, University of Copenhagen. Department of Economics.
  2. Shi, Xianwen, 2012. "Optimal auctions with information acquisition," Games and Economic Behavior, Elsevier, vol. 74(2), pages 666-686.
  3. Szalay, Dezsö, 2012. "Strategic information transmission and stochastic orders," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 386, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Krähmer, Daniel & Strausz, Roland, 2010. "Optimal Procurement Contracts with Pre–Project Planning," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 303, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Malcomson James M, 2009. "Principal and Expert Agent," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-36, May.
  6. Lagerlöf, Johan N. M. & Schottmüller, Christoph, 2013. "Monopoly Insurance with Endogenous Information," CEPR Discussion Papers 9774, C.E.P.R. Discussion Papers.
  7. Fleckinger, Pierre, 2012. "Correlation and relative performance evaluation," Journal of Economic Theory, Elsevier, vol. 147(1), pages 93-117.
  8. Stefan Terstiege, 2011. "Randomization in contracts with endogenous information," Bonn Econ Discussion Papers bgse07_2011, University of Bonn, Germany.
  9. Terstiege, Stefan, 2013. "Precontractual Investigation and Sequential Screening," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 429, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  10. Terstiege, Stefan, 2012. "Endogenous information and stochastic contracts," Games and Economic Behavior, Elsevier, vol. 76(2), pages 535-547.

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