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Gathering imperfect information before signing a contract

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  • Terstiege, Stefan

Abstract

I study information gathering for rent-seeking purposes in contracting. In my model, an agent learns his payoff type only after accepting a contract, but can at costs acquire imperfect information while deliberating whether to accept. I show that the principal deters the acquisition if and only if the costs are high. The result stands in contrast to a finding by Crémer and Khalil (1992), who demonstrate that the acquisition of perfect information will always be deterred. A key insight is that the case of imperfect information is an instance of a sequential-screening problem.

Suggested Citation

  • Terstiege, Stefan, 2016. "Gathering imperfect information before signing a contract," Games and Economic Behavior, Elsevier, vol. 97(C), pages 70-87.
    • Handle: RePEc:eee:gamebe:v:97:y:2016:i:c:p:70-87
    DOI: 10.1016/j.geb.2016.03.009
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    References listed on IDEAS

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    Cited by:

    1. Rodivilov, Alexander, 2021. "A note on robust procurement contracts," Economics Letters, Elsevier, vol. 201(C).

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    More about this item

    Keywords

    Principal agent; Information acquisition; Rent seeking; Sequential screening;
    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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