Information Gathering, Disclosure and Contracting in Competitive Markets
AbstractThe paper studies the determinants of information gathering in insurance and credit markets. In our set-up, information may have either operational or strategic value, e.g. it may improve allocative decisions or allow agents to appropriate a larger share of gains from trade at the contracting stage. The timing of information gathering is endogenous and agents can gather information either before or after contracting. Access to precontractual information generates a negative contracting externality, which was first identified in Hirshleifer.s (1971) seminal contribution. In contrast with a well established conventional wisdom and a substantial literature, we prove that, if the operational value of information is positive and not "too small", private returns of information fall short of its social returns, and pre-contractual access to information leads to under-investment . On the contrary, agents over-invest in information gathering activities, when the operational value of the available signals is sufficiently low. Consistently with contractual arrangements observed in the real world, we also show that equilibrium contracts have also a very simple shape when private information can be voluntarily disclosed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 190.
Date of creation: 01 Jan 2008
Date of revision:
private information; information gathering; value of information;
This paper has been announced in the following NEP Reports:
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 Vaimaki, 2000.
"Information Acquisition and Efficient Mechanism Design,"
Cowles Foundation Discussion Papers
1248, Cowles Foundation for Research in Economics, Yale University.
- Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
- Nicola Persico, 1997.
"Information Acquisition in Auctions,"
UCLA Economics Working Papers
762, UCLA Department of Economics.
- Susan Athey, 2002. "Monotone Comparative Statics Under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 187-223, February.
- Compte, Olivier & Jehiel, Philippe, 2008. "Gathering information before signing a contract: A screening perspective," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 206-212, January.
- Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
- Annamaria Menichini & Peter Simmons, 2008. "Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition," CSEF Working Papers 201, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 27 Oct 2012.
- Francesca Barigozzi & Dominique Henriet, 2008.
"Genetic Information: Comparing Alternative Regulatory Approaches when Prevention Matters,"
CHILD Working Papers
wp01_09, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
- Francesca Barigozzi & Dominique Henriet, 2011. "Genetic Information: Comparing Alternative Regulatory Approaches When Prevention Matters," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(1), pages 23-46, 02.
- F. Barigozzi & D. Henriet, 2009. "Genetic Information: Comparing Alternative Regulatory Approaches when Prevention Matters," Working Papers 657, Dipartimento Scienze Economiche, Universita' di Bologna.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lia Ambrosio).
If references are entirely missing, you can add them using this form.