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The Economics of Clear Advice and Extreme Options

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  • Dezs� Szalay

Abstract

I study a principal-agent model in which the agent collects information and then chooses a verifiable action. I show that the principal can find it desirable to constrain the agent's action set even though there is no disagreement about the ranking of actions ex post. The elimination or penalization of "intermediate" actions, which are optimal when information is poor, improves incentives for information collection. I characterize optimal action sets when the agent is infinitely risk averse with respect to income shocks and optimal incentive schemes when the agent is risk neutral. Copyright 2005, Wiley-Blackwell.

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File URL: http://hdl.handle.net/10.1111/0034-6527.00366
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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 72 (2005)
Issue (Month): 4 ()
Pages: 1173-1198

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Handle: RePEc:oup:restud:v:72:y:2005:i:4:p:1173-1198

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Cited by:
  1. Liang, Pinghan, 2013. "Optimal delegation via a strategic intermediary," Games and Economic Behavior, Elsevier, vol. 82(C), pages 15-30.
  2. Liang, Pinghan, 2013. "Optimal delegation via a strategic intermediary," MPRA Paper 45271, University Library of Munich, Germany.
  3. Kovác, Eugen & Krähmer, Daniel, 2013. "Optimal Sequential Delegation," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 427, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Alonso, Ricardo & Matouschek, Niko, 2005. "Optimal Delegation," CEPR Discussion Papers 5289, C.E.P.R. Discussion Papers.
  5. Dezsö Szalay & Ramon Arean, 2005. "Communicating with a Team of Experts," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 05.12, Université de Lausanne, Faculté des HEC, DEEP.
  6. Kolotilin, Anton & Li, Hao & Li, Wei, 2013. "Optimal limited authority for principal," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2344-2382.
  7. K.J.M. De Jaegher, 2007. "Expert incentives: cure versus prevention," Working Papers 07-08, Utrecht School of Economics.
  8. De Jaegher, Kris, 2010. "Physician incentives: Cure versus prevention," Journal of Health Economics, Elsevier, vol. 29(1), pages 124-136, January.
  9. Irene Valsecchi, 2013. "The expert problem: a survey," Economics of Governance, Springer, vol. 14(4), pages 303-331, November.
  10. Conlin, Michael & Orsini, Joe & Tang, Meng-Chi, 2013. "The effect of an agent’s expertise on National Football League contract structure," Economics Letters, Elsevier, vol. 121(2), pages 275-281.
  11. Aggey Semenov, 2012. "Delegation to a potentially uninformed agent," Working Papers 1215E, University of Ottawa, Department of Economics.
  12. Flavia Roldán, 2013. "The organization of expertise in the presence of communication," Review of Economic Design, Springer, vol. 17(1), pages 63-81, March.
  13. Wolfgang R. Köhler, 2004. "Optimal Incentive Contracts for Experts," Bonn Econ Discussion Papers bgse6_2004, University of Bonn, Germany.

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