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Endogenous Punishments In Agency With Verifiable Ex Post Information

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  • Anke S. Kessler
  • Christoph Lülfesmann
  • Patrick W. Schmitz

Abstract

The article studies an adverse selection model in which a contractible, imperfect signal on the agent's type is revealed ex post. The agent is wealth constrained, which implies that the maximum penalty depends on the contracted transaction (e.g., the volume of trade). First, we show that the qualitative effects of the signal can be unambiguously tied to the nature of the problem (e.g., whether the agent is in a "buyer" or a "seller" position). Second, the distortions caused by informational asymmetries may become more severe although more information is now available. Finally, the signal can actually serve to increase the agent's informational rents. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Anke S. Kessler & Christoph Lülfesmann & Patrick W. Schmitz, 2005. "Endogenous Punishments In Agency With Verifiable Ex Post Information ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1207-1231, November.
  • Handle: RePEc:ier:iecrev:v:46:y:2005:i:4:p:1207-1231
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    Citations

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    Cited by:

    1. Schmitz, Patrick W., 2007. "Optimal selling strategies when buyers may have hard information," European Economic Review, Elsevier, vol. 51(4), pages 859-870, May.
    2. Robert Gary‐Bobo & Yossi Spiegel, 2006. "Optimal state‐contingent regulation under limited liability," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 431-448, June.
    3. Eberhard Feess & Michael Schieble & Markus Walzl, 2011. "Why it Pays to Conceal: On the Optimal Timing of Acquiring Verifiable Information," German Economic Review, Verein für Socialpolitik, vol. 12(1), pages 100-123, February.
    4. Silvers, Randy, 2012. "The value of information in a principal–agent model with moral hazard: The ex post contracting case," Games and Economic Behavior, Elsevier, vol. 74(1), pages 352-365.
    5. Roland Strausz, 2006. "Interim Information in Long-Term Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 1041-1067, December.
    6. Patrick W. Schmitz, 2006. "Book Review," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(3), pages 535-542, September.
    7. repec:eee:jetheo:v:173:y:2018:i:c:p:289-319 is not listed on IDEAS
    8. repec:eee:irlaec:v:52:y:2017:i:c:p:29-43 is not listed on IDEAS
    9. Goldlücke, Susanne & Schmitz, Patrick W., 2016. "Pollution Claim Settlements Reconsidered: Hidden Information and Bounded Payments," CEPR Discussion Papers 11217, C.E.P.R. Discussion Papers.
    10. Daniel Danau & Annalisa Vinella, 2017. "Contractual design in agency problems with non-monotonic cost and correlated information," SERIES 02-2017, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Mar 2017.
    11. Mikhail Drugov, 2010. "Information and delay in an agency model," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 598-615.
    12. Schmitz, Patrick W., 2006. "Book Review of “Contract Theory” (Bolton and Dewatripont, 2005)," MPRA Paper 6977, University Library of Munich, Germany.
    13. Anke S. Kessler, 2004. "Optimal Auditing in Hierarchical Relationships," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(2), pages 210-210, June.

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