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Observability of information gathering in agency models

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  • Hoppe, Eva I.

Abstract

We consider an adverse selection model in which the agent can gather private information before the principal offers the contract. There are two scenarios. In scenario I, information gathering is a hidden action, while in scenario II, the principal observes the agent's information gathering decision. We study how the two scenarios differ with respect to the agent's expected rent, the principal's expected profit, and the expected total surplus. In particular, it turns out that the principal may be better off when the agent's information gathering decision is a hidden action.

Suggested Citation

  • Hoppe, Eva I., 2013. "Observability of information gathering in agency models," MPRA Paper 43647, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:43647
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    References listed on IDEAS

    as
    1. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-578, June.
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    4. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Strategic Information Gathering before a Contract Is Offered," Journal of Economic Theory, Elsevier, vol. 81(1), pages 163-200, July.
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    6. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
    7. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    8. Cremer, Jacques & Khalil, Fahad, 1994. "Gathering information before the contract is offered: The case with two states of nature," European Economic Review, Elsevier, vol. 38(3-4), pages 675-682, April.
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    More about this item

    Keywords

    Hidden information; adverse selection; information gathering;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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