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Strategic transmission of information and short-term commitment

Author

Listed:
  • Theofanis Tsoulouhas

    () (Department of Economics, North Carolina State University, Raleigh, NC 27695-7507, USA)

  • Charles M. Kahn

    () (Department of Finance, University of Illinois, Champaign, IL 61820, USA)

Abstract

We examine the strategic role of information transmission in a repeated principal-agent relationship where the agent produces information that is useful to the principal. The agent values continuous employment for the principal because he makes a relationship-specific investment that can yield rents to him when the relationship is renewed. Assuming that the parties are sufficiently impatient, we show that full disclosure of the information produced occurs early in the relationship when the principal can commit to a long-term relationship, when the agent observes his valuation of continuous employment after making a report on information produced, or when the agent obtains a low valuation of continuous employment before making a report. By contrast, a strategic delay in the transmission of information occurs when the principal can only commit to a short-term relationship and the agent obtains a high valuation of continuous employment before making a report.

Suggested Citation

  • Theofanis Tsoulouhas & Charles M. Kahn, 1999. "Strategic transmission of information and short-term commitment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(1), pages 131-153.
  • Handle: RePEc:spr:joecth:v:14:y:1999:i:1:p:131-153
    Note: Received: October 15, 1997; revised version: July 27, 1998
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    Cited by:

    1. Raúl Alberto Ponce Rodríguez, 2009. "Political institutions and tax rate initiatives," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 65-94, November.

    More about this item

    Keywords

    Repeated principal-agent relationship; Adverse selection; Information transmission.;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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