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Transparency in agency: The constant elasticity case and extensions

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  • Marino, Anthony M.

Abstract

This paper considers a hidden action agency problem where the principal has a single source of hidden information concerning the agent's utility, the agent's effort productivity, or the agent's cost of effort. We examine whether the principal should precommit to disclosing these different single sources of information to the agent. If the optimal contract is invariant over the hidden information and, thus, the disclosure rules (constant elasticity case), such disclosure increases the agent's utility, it can raise or lower profit and total surplus depending on the source of hidden information, and non-disclosure can be optimal if disclosure affects the agent's motivation. If the contract varies with the hidden information and, thus, disclosure rule, disclosure or non-disclosure can be optimal depending on whether the party's payoff is convex or concave in the information variable, respectively.

Suggested Citation

  • Marino, Anthony M., 2014. "Transparency in agency: The constant elasticity case and extensions," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 9-21.
  • Handle: RePEc:eee:indorg:v:33:y:2014:i:c:p:9-21
    DOI: 10.1016/j.ijindorg.2013.12.002
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    References listed on IDEAS

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    Cited by:

    1. Marino, Anthony M. & Ozbas, Oguzhan, 2014. "Disclosure of status in an agency setting," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 191-207.

    More about this item

    Keywords

    Information; Disclosure; Non-disclosure;

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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