Costly Distortion of Information in Agency Problems
AbstractAnecdotal evidence suggests that agents often spend resources distorting information transmitted to principals. We present a model where costly information distortion emerges as equilibrium behavior. The information structure we focus on is intermediate between (and encompasses) the cases of private information and public information: the agent can falsify the privately observed state at some cost. Although the principal can design contracts that induce no falsification, these may involve excessive iinformation rents: falsification can be beneficial in spite of the waste of resources involved, because it helps reduce information rents. We examine how optimal contract and equilibrium payoffs change as the information structure ranges from private to public information.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 26 (1995)
Issue (Month): 4 (Winter)
Contact details of provider:
Web page: http://www.rje.org
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Celik, Gorkem, 2006.
"Mechanism design with weaker incentive compatibility constraints,"
Games and Economic Behavior,
Elsevier, vol. 56(1), pages 37-44, July.
- Celik, Gorkem, 2004. "Mechanism Design with Weaker Incentive Compatibility Constraints," Microeconomics.ca working papers celik-04-09-13-05-50-40, Vancouver School of Economics, revised 06 Aug 2008.
- Roland Hodler & Simon Loertscher & Dominic Rohner, 2007. "False Alarm? Terror Alerts and Reelection," Department of Economics - Working Papers Series 995, The University of Melbourne.
- Andrew Clausen (University of Edinburgh), 2013. "Moral Hazard with Counterfeit Signals," ESE Discussion Papers 225, Edinburgh School of Economics, University of Edinburgh.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.