Costly Distortion of Information in Agency Problems
Anecdotal evidence suggests that agents often spend resources distorting information transmitted to principals. We present a model where costly information distortion emerges as equilibrium behavior. The information structure we focus on is intermediate between (and encompasses) the cases of private information and public information: the agent can falsify the privately observed state at some cost. Although the principal can design contracts that induce no falsification, these may involve excessive iinformation rents: falsification can be beneficial in spite of the waste of resources involved, because it helps reduce information rents. We examine how optimal contract and equilibrium payoffs change as the information structure ranges from private to public information.
Volume (Year): 26 (1995)
Issue (Month): 4 (Winter)
|Contact details of provider:|| Web page: http://www.rje.org|
|Order Information:||Web: https://editorialexpress.com/cgi-bin/rje_online.cgi|
When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:26:y:1995:i:winter:p:675-689. 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: ()
If references are entirely missing, you can add them using this form.