This paper considers an environment where two principals sequentially contract with a common agent and studies the exchange of information between the two bilateral relationships. We show that when (a) the upstream principal is not personally interested in the decisions taken by the downstream principal, (b) the agent’s exogenous private information has a "vertical" structure in the sense that the sign of the single crossing condition is the same for upstream and downstream decisions, and (c) preferences in the downstream relationship are separable, then the upstream principal optimally commits to full privacy, whatever price the downstream principal is willing to pay to receive information. On the contrary, when any of the above conditions is violated, the upstream principal may find it strictly optimal to disclose a (noisy) signal of the agent’s exogenous type and/or the result of his upstream contractual activity, even if she can not make the downstream principal pay for the information she receives. We also show that disclosure does not necessarily reduce the equilibrium payoff of the agent and may lead to a Pareto improvement for the three players.
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number
1394.
Length: Date of creation: Jul 2004 Date of revision: Handle: RePEc:nwu:cmsems:1394
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Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Dirk Bergemann & Juuso Valimaki, 1998.
"Dynamic Common Agency,"
Discussion Papers
1259, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Giacomo Calzolari & Alessandro Pavan, 2003.
"Monopoly with Resale,"
Working Papers
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[Downloadable!]
Other versions:
Giacomo Calzolari & Alessandro Pavan, 2004.
"Monopoly with Resale,"
Discussion Papers
1393, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Giacomo Calzolari & Alessandro Pavan, 2005.
"Monopoly with Resale,"
Discussion Papers
1405, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Andrew F. Daughety & Jennifer F. Reinganum, 2008.
"Privacy, Publicity, and Choice,"
Working Papers
0809, Department of Economics, Vanderbilt University.
[Downloadable!]
Other versions:
Andrew F. Daughety & Jennifer F. Reinganum, 2008.
"Settlement,"
Working Papers
0808, Department of Economics, Vanderbilt University.
[Downloadable!]
Heski Bar-Isaac & Ian Jewitt & Clare Leaver, 2007.
"Information and Human Capital Managment,"
Working Papers
07-29, New York University, Leonard N. Stern School of Business, Department of Economics.
[Downloadable!]
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