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Information provision before a contract is offered

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  • Kim, Jaesoo
  • Shin, Dongsoo

Abstract

This paper considers an agency model in which the agent can update the principal’s belief before the contract is offered. We identify that the agent who has a bad potential to perform the task has a small chance to receive information rent, but if he receives it, he receives a large amount. Thus, the agent may choose to provide more information that shifts the principal’s belief to the negative direction if the prior belief is optimistic.

Suggested Citation

  • Kim, Jaesoo & Shin, Dongsoo, 2014. "Information provision before a contract is offered," Economics Letters, Elsevier, vol. 124(3), pages 490-493.
  • Handle: RePEc:eee:ecolet:v:124:y:2014:i:3:p:490-493
    DOI: 10.1016/j.econlet.2014.06.037
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    References listed on IDEAS

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    1. Pascal Courty & Li Hao, 2000. "Sequential Screening," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 697-717.
    2. 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.
    3. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-578, June.
    4. Emir Kamenica & Matthew Gentzkow, 2011. "Bayesian Persuasion," American Economic Review, American Economic Association, vol. 101(6), pages 2590-2615, October.
    5. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-930, July.
    6. Hoppe, Eva I. & Schmitz, Patrick W., 2010. "The costs and benefits of additional information in agency models with endogenous information structures," Economics Letters, Elsevier, vol. 107(1), pages 58-62, April.
    7. Isabelle Brocas & Juan D. Carrillo, 2007. "Influence through ignorance," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 931-947, December.
    8. Anke Kessler, 1998. "The Value of Ignorance," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 339-354, Summer.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Agency contracting; Information provision; Information rent;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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