Pre-Contractual Information Acquisition

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Pre-Contractual Information Acquisition

Author Info

Manuel Willington () (ILADES-Georgetown University, Universidad Alberto Hurtado)

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Manuel Willington

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.

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Paper provided by Ilades-Georgetown University, School of Economics and Bussines in its series ILADES-Georgetown University Working Papers with number inv154.

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Length: 49 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:ila:ilades:inv154

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-12-12 (All new papers)
NEP-MIC-2004-12-12 (Microeconomics)

References listed on IDEAS
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Other versions:
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Other versions:
- Khalil, F & Rochet, J-C, 1997. "Contracts and Productive Information Gathering," Working Papers 97-16, University of Washington, Department of Economics.
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