Communication in Private-Information Models: Theory and Computation
Communication and no-communication versions of a two-stage principal-agent model are compared. The models contain a risk-averse agent and two sources of private information, a shock to preferences followed by a productive action. Both models are formulated as linear programs, which are then used to compute solutions to examples. For the communication model, an alternative method of accounting for the utility from off-equilibrium strategies is derived. This method greatly reduces the size of the linear program. For the no-communication model a Revelation-Principle like proof is provided. In simple cases, a sufficient condition for communication to be valuable is derived. In these cases, communication improves risk-sharing in bad states of the world. In more complicated cases, computed examples demonstrate how communication may also alter labor supply. Further examples demonstrate how action and consumption lotteries may separate agents by their shock. The Geneva Papers on Risk and Insurance Theory (2003) 28, 105–130. doi:10.1023/A:1026388604459
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 28 (2003)
Issue (Month): 2 (December)
|Contact details of provider:|| Web page: http://www.palgrave-journals.com/|
|Order Information:|| Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK|
Web: http://www.palgrave-journals.com/pal/subscribe/index.html Email:
When requesting a correction, please mention this item's handle: RePEc:pal:genrir:v:28:y:2003:i:2:p:105-130. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Daniel Foley)
If references are entirely missing, you can add them using this form.