The purpose of this paper is to study the effects of introducing information systems into a model featuring managerial incentive problems and investment opportunities that are mutually exclusive over time. In a principal-agent model in which a manager (agent) has superior information about investment costs, we introduce information systems, the signals from which are available to both the manager and the owner of the investment opportunity, which allow the owner to decrease the managerÂs informational advantage. We examine (i) the characteristics of the optimal information systems; (ii) the effects of such information systems on the ownerÂs investment and compensation choices and on the value of the investment opportunity to the owner; (iii) the effects of such information systems on the timing of investment; (iv) the effects of such information systems on the overall probability of investment; and (v) when the owner might want to improve the information system at a particular point in time.
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Paper provided by Royal Veterinary and Agricultural University, Food and Resource Economic Institute in its series Unit of Economics Working papers with number
24201.
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