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The Value of Information in an Agency Model with Moral Hazard

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Abstract

In a principal-agent environment with moral hazard and symmetric information, having or acquiring a more informative technology lowers the cost to implement a given action. Contracting may occur after or before the principal learns her technology. We show that when the principal has or will acquire private information about her technology, (i) with ex post contracting, the value of information for the principal may be negative; and (ii) although the agent prefers that the principal has private information with ex post contracting, ex ante contracting is superior to ex post contracting by the Potential Pareto Criterion.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2006_22eco.pdf
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Bibliographic Info

Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2006_22.

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Length: 32 pages
Date of creation: 16 Nov 2006
Date of revision:
Handle: RePEc:dkn:econwp:eco_2006_22

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Related research

Keywords: Moral Hazard; Principal-Agent; Informed Principal; Information; Technology;

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  1. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
  2. Hector Chade & Randolph Silvers, . "Informed Principal, Moral Hazard, and the Value of a More Informative Technology," Working Papers 2133302, Department of Economics, W. P. Carey School of Business, Arizona State University.
  3. Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, vol. 51(6), pages 1767-97, November.
  4. Inderst, Roman, 1998. "Incentives Schemes as a Signaling Device," Sonderforschungsbereich 504 Publications 98-36, Sonderforschungsbereich 504, Universit├Ąt Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  5. Shannon, Chris, 1995. "Weak and Strong Monotone Comparative Statics," Economic Theory, Springer, vol. 5(2), pages 209-27, March.
  6. Kim, Son Ku, 1995. "Efficiency of an Information System in an Agency Model," Econometrica, Econometric Society, vol. 63(1), pages 89-102, January.
  7. Sobel, Joel, 1993. "Information Control in the Principal-Agent Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 259-69, May.
  8. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
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