We study a model of informed principal with private values where the principal is risk neutral and the agent is risk averse. We show that the principal, regardless of her type, gains by not revealing her type to the agent through the contract offer. The equilibrium allocation transfers some ex-ante risk from one type of agent to the other. Despite the increase in the principal`s surplus, allocative efficiency does not necessarily improve.
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number
234.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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