Optimal Information Revelation by Informed Investors
AbstractThis paper studies the structure of optimal finance contracts in an agency model of outside finance, when investors possess private information. We show that, depending on the intensity of the entrepreneurâ€™s moral hazard problem, optimal contracts induce full, partial, or no revelation of the investorâ€™s private information. A partial or nonrevelation of information is optimal, when it mitigates an undersupply of effort by the entrepreneur due to moral hazard.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 34.
Date of creation: Jan 2005
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informed investors; optimal finance contracts; partial information revelation;
Find related papers by JEL classification:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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