Arm's Length Relationships
The author shows that lowering the cost of acquisition of information that a principal obtains about the performance of an agent may make it more difficult for the principal to commit to threats. Hence, it will weaken incentives and can, therefore, be counterproductive. This phenomenon is explored in a framework where improving the quality of information makes a commitment not to renegotiate less credible. Applications to the theory of the firm are briefly explored. Copyright 1995, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 110 (1995)
Issue (Month): 2 (May)
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