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Pre-Contractual Information Acquisition

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Abstract

We consider a principal-agent model in which the agent may acquire costly infor-mation about his e¤ort costs before he accepts a contract. The model departs from the literature in two ways: (1) the information is 'hard' in the sense that it can be credibly communicated, and (2) the parties are unable to commit to not renegotiate their contract. When the cost of acquiring information is low, the optimal contract induces information acquisition. In this case the contract is renegotiated and leaves the agent no rent. When the information cost is higher, the optimal contract induces the agent not to acquire information. In this case, if the cost is not too high, quantities are ine¢cient and the agent may receive rent. If the cost is yet higher, the contract again yields e¢cient quantities and leaves the agent no rent. These results hold also if parties can commit themselves not to renegotiate.

Suggested Citation

  • Manuel Willington, 2004. "Pre-Contractual Information Acquisition," ILADES-UAH Working Papers inv154, Universidad Alberto Hurtado/School of Economics and Business.
    • Handle: RePEc:ila:ilades:inv154
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    References listed on IDEAS

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    More about this item

    Keywords

    Information Acquisition; Hard Information; Renegotiation.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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