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Entrepreneur–Investor Information Design

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  • Oleg Muratov

Abstract

I consider an environment in which an entrepreneur generates information about the quality of his project prior to contracting with an investor. The investor faces a moral‐hazard problem since the entrepreneur may divert the funding for private consumption. I find that the efficient amount of information is generated if and only if the bargaining power of the entrepreneur is high enough. I interpret this result in terms of investors' tightness, competitiveness, and generosity measures. I also show that the investor prefers not to have all the bargaining power when the project costs are high enough.

Suggested Citation

  • Oleg Muratov, 2023. "Entrepreneur–Investor Information Design," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1431-1467, November.
    • Handle: RePEc:wly:iecrev:v:64:y:2023:i:4:p:1431-1467
    DOI: 10.1111/iere.12634
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    References listed on IDEAS

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