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Precontractual Investigation and Sequential Screening

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  • Terstiege, Stefan
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    Abstract

    Should contract design induce an agent to conduct a precontractual investigation even though, in any case, the agent will become fully informed after the signing of the contract? This paper shows that imperfect investigations might be encouraged. The result stands in contrast to previous studies, which focus on perfect investigations. The contrast exists because if precontractual investigation is perfect, the benefits of sequential screening vanish.

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    File URL: http://epub.ub.uni-muenchen.de/17334/1/429.pdf
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    Bibliographic Info

    Paper 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 429.

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    Date of creation: 22 Oct 2013
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    Handle: RePEc:trf:wpaper:429

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    Keywords: Principal agent; information acquisition; sequential screening;

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    1. Dezsö SZALAY, 2004. "Contracts with Endogenous Information," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 04.05, Université de Lausanne, Faculté des HEC, DEEP.
    2. Cremer, J. & Khalil, F., 1991. "Gathering Information Before Signing a Contract," Discussion Papers in Economics at the University of Washington 91-16, Department of Economics at the University of Washington.
    3. Roger B. Myerson, 1984. "Multistage Games with Communication," Discussion Papers 590, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Daniel Kr�mer & Roland Strausz, 2009. "Optimal Procurement Contracts with Pre--Project Planning," Papers 036, Departmental Working Papers.
    5. Alex Gershkov, 2009. "Optimal auctions and information disclosure," Review of Economic Design, Springer, vol. 13(4), pages 335-344, December.
    6. Bergemann, Dirk & Pesendorfer, Martin, 2001. "Information Structures in Optimal Auctions," CEPR Discussion Papers 2991, C.E.P.R. Discussion Papers.
    7. Khalil, F & Rochet, J-C, 1997. "Contracts and Productive Information Gathering," Discussion Papers in Economics at the University of Washington 97-16, Department of Economics at the University of Washington.
    8. Anke Kessler, 1998. "The Value of Ignorance," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 339-354, Summer.
    9. Xianwen Shi, 2007. "Optimal Auctions with Information Acquisition," Working Papers tecipa-302, University of Toronto, Department of Economics.
    10. Fuente,Angel de la, 2000. "Mathematical Methods and Models for Economists," Cambridge Books, Cambridge University Press, number 9780521585293, October.
    11. Craswell, Richard, 1988. "Precontractual Investigation as an Optimal Precaution Problem," The Journal of Legal Studies, University of Chicago Press, vol. 17(2), pages 401-36, June.
    12. Raphael Boleslavsky & Maher Said, 2013. "Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 1-34.
    13. Lewis, Tracy R & Sappington, David E M, 1997. "Information Management in Incentive Problems," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 796-821, August.
    14. Marco Battaglini, 2003. "Long-Term Contracting with Markovian Consumers," Theory workshop papers 505798000000000048, UCLA Department of Economics.
    15. 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.
    16. Terstiege, Stefan, 2012. "Endogenous information and stochastic contracts," Games and Economic Behavior, Elsevier, vol. 76(2), pages 535-547.
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