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Randomization in contracts with endogenous information

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  • Stefan Terstiege

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    Abstract

    I consider a situation, where the agent can acquire payoff-relevant information either before or after the contract is signed. To raise efficiency, the principal might solicit information; to retain all surplus, however, she must prevent precontractual information gathering. The following class of stochastic contracts may solve this trade-off optimally: before signing, information acquisition is not solicited, and afterwards randomly. The key insight is that randomization makes precontractual information costlier for the agent.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse07_2011.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse07_2011.

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    Length: 25
    Date of creation: Jun 2011
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse07_2011

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: Information acquisition; Principal-agent; Mechanism design; Randomization;

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