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Contracts with Endogenous Information

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  • Dezso Szalay

    (Department of Economics, University of Warwick)

Abstract

I study covert information acquisition and reporting in a principal agent problem allowing for general technologies of information acquisition. When posteriors satisfy local versions of the standard First Order Stochastic Dominance and Concavity/Convexity of the Distribution Function conditions, a first-order approach is justified. Under the same conditions, informativeness and riskiness of reports are equivalent. High powered contracts, that make the agents informational rents more risky, are used to increase incentives for information acquisition, insensitive contracts are used to reduce incentives for information gathering. The value of information to the agent is always positive. The value of information to the principal is ambiguous.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_780.pdf
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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 780.

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Length: 46 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:wrk:warwec:780

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Keywords: Asymmetric Information ; Mechanism Design ; Information Acquisition ; Stochastic Ordering ; Value of Information;

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References

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Citations

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Cited by:
  1. Terstiege, Stefan, 2013. "Precontractual Investigation and Sequential Screening," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 429, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Szalay, Dezsö, 2012. "Strategic information transmission and stochastic orders," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 386, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Terstiege, Stefan, 2012. "Endogenous information and stochastic contracts," Games and Economic Behavior, Elsevier, Elsevier, vol. 76(2), pages 535-547.
  4. Lagerlöf, Johan N. M. & Schottmüller, Christoph, 2013. "Monopoly Insurance with Endogenous Information," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9774, C.E.P.R. Discussion Papers.
  5. Johan N. M. Lagerlöf & Christoph Schottmüller, 2013. "Facilitating Consumer Learning in Insurance Markets - What Are the Welfare Effects?," Discussion Papers 13-12, University of Copenhagen. Department of Economics.
  6. James Malcomson, 2004. "Principal and Expert Agent," Economics Series Working Papers 193, University of Oxford, Department of Economics.
  7. Fleckinger, Pierre, 2012. "Correlation and relative performance evaluation," Journal of Economic Theory, Elsevier, Elsevier, vol. 147(1), pages 93-117.
  8. Stefan Terstiege, 2011. "Randomization in contracts with endogenous information," Bonn Econ Discussion Papers, University of Bonn, Germany bgse07_2011, University of Bonn, Germany.
  9. Shi, Xianwen, 2012. "Optimal auctions with information acquisition," Games and Economic Behavior, Elsevier, Elsevier, vol. 74(2), pages 666-686.
  10. Krähmer, Daniel & Strausz, Roland, 2010. "Optimal Procurement Contracts with Pre–Project Planning," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 303, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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