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Endogenous information and stochastic contracts


  • Terstiege, Stefan


A growing literature analyzes revenue-maximizing contracts for situations in which agents can acquire private information before they decide whether to join the contract. It is conjectured that the results also apply to the more natural scenario where information can be acquired either before or after signing. This paper shows that, in fact, the latter scenario is more favorable for the principal. Using stochastic contracts, she can induce information acquisition with some probability and yet appropriate the generated surplus.

Suggested Citation

  • Terstiege, Stefan, 2012. "Endogenous information and stochastic contracts," Games and Economic Behavior, Elsevier, vol. 76(2), pages 535-547.
  • Handle: RePEc:eee:gamebe:v:76:y:2012:i:2:p:535-547
    DOI: 10.1016/j.geb.2012.08.001

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    References listed on IDEAS

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    Cited by:

    1. Iossa, Elisabetta & Martimort, David, 2015. "Pessimistic information gathering," Games and Economic Behavior, Elsevier, vol. 91(C), pages 75-96.
    2. Terstiege, Stefan, 2013. "Precontractual Investigation and Sequential Screening," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 429, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

    More about this item


    Principal agent; Information acquisition; Stochastic contracts;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law


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