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Contracts with Endogenous Information

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  • Szalay, Dezso

Abstract

I study covert information acquisition and reporting in a principal agent problem allowing for general technologies of information acquisition. When posteriors satisfy local versions of the standard First Order Stochastic Dominance and Concavity/Convexity of the Distribution Function conditions, a Örst-order approach is justiÖed. Under the same conditions, informativeness and riskiness of reports are equivalent. High powered contracts, that make the agentís informational rents more risky, are used to increase incentives for information acquisition, insensitive contracts are used to reduce incentives for information gathering. The value of information to the agent is always positive. The value of information to the principal is ambiguous.

Suggested Citation

  • Szalay, Dezso, 2006. "Contracts with Endogenous Information," Economic Research Papers 269750, University of Warwick - Department of Economics.
  • Handle: RePEc:ags:uwarer:269750
    DOI: 10.22004/ag.econ.269750
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    Cited by:

    1. Li, Yunan, 2019. "Efficient mechanisms with information acquisition," Journal of Economic Theory, Elsevier, vol. 182(C), pages 279-328.
    2. Malcomson James M, 2009. "Principal and Expert Agent," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-36, May.
    3. Aoyagi, Masaki, 2014. "Strategic obscurity in the forecasting of disasters," Games and Economic Behavior, Elsevier, vol. 87(C), pages 485-496.
    4. Johan N. M. Lagerlöf & Christoph Schottmüller, 2018. "Facilitating Consumer Learning in Insurance Markets: What Are the Welfare Effects?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(2), pages 465-502, April.
    5. Yunan Li, 2017. "Efficient Mechanisms with Information Acquisition," PIER Working Paper Archive 16-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 23 Jun 2017.
    6. Iossa, Elisabetta & Martimort, David, 2015. "Pessimistic information gathering," Games and Economic Behavior, Elsevier, vol. 91(C), pages 75-96.
    7. Shi, Xianwen, 2012. "Optimal auctions with information acquisition," Games and Economic Behavior, Elsevier, vol. 74(2), pages 666-686.
    8. Leon Yang Chu & David E. M. Sappington, 2010. "Contracting with private knowledge of signal quality," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 244-269, June.
    9. Yaron Yehezkel, 2014. "Motivating a Supplier to Test Product Quality," Journal of Industrial Economics, Wiley Blackwell, vol. 62(2), pages 309-345, June.
    10. Terstiege, Stefan, 2012. "Endogenous information and stochastic contracts," Games and Economic Behavior, Elsevier, vol. 76(2), pages 535-547.
    11. Anke Gerber & Corina Haita‐Falah & Andreas Lange, 2018. "The Agency Of Politics And Science," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1543-1561, July.
    12. Terstiege, Stefan, 2016. "Gathering imperfect information before signing a contract," Games and Economic Behavior, Elsevier, vol. 97(C), pages 70-87.
    13. Terstiege, Stefan, 2013. "Precontractual Investigation and Sequential Screening," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 429, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    14. David Gaddis Ross, 2012. "On Evaluation Costs in Strategic Factor Markets: The Implications for Competition and Organizational Design," Management Science, INFORMS, vol. 58(4), pages 791-804, April.
    15. Lang, Ruitian, 2019. "Try before you buy: A theory of dynamic information acquisition," Journal of Economic Theory, Elsevier, vol. 183(C), pages 1057-1093.
    16. Krähmer, Daniel & Strausz, Roland, 2010. "Optimal Procurement Contracts with Pre–Project Planning," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 303, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    17. Terstiege, Stefan, 2011. "Randomization in contracts with endogenous information," Bonn Econ Discussion Papers 07/2011, University of Bonn, Bonn Graduate School of Economics (BGSE).
    18. Negin Golrezaei & Hamid Nazerzadeh, 2017. "Auctions with Dynamic Costly Information Acquisition," Operations Research, INFORMS, vol. 65(1), pages 130-144, February.
    19. Fleckinger, Pierre, 2012. "Correlation and relative performance evaluation," Journal of Economic Theory, Elsevier, vol. 147(1), pages 93-117.
    20. Bing Ye & Sanxi Li, 2018. "Competitive contracts with productive information gathering," Journal of Economics, Springer, vol. 124(1), pages 1-17, May.
    21. Johan N.M. Lagerlöf & Christoph Schotmüller, 2013. "Monopoly Insurance with Endogenous Information," Discussion Papers 13-15, University of Copenhagen. Department of Economics.
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    23. Chade, Hector & Kovrijnykh, Natalia, 2016. "Delegated information acquisition with moral hazard," Journal of Economic Theory, Elsevier, vol. 162(C), pages 55-92.
    24. Marschak, Thomas & Shanthikumar, J. George & Zhou, Junjie, 2017. "Does more information-gathering effort raise or lower the average quantity produced?," Journal of Mathematical Economics, Elsevier, vol. 69(C), pages 104-117.
    25. Szalay, Dezsö, 2012. "Strategic information transmission and stochastic orders," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 386, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

    More about this item

    Keywords

    Research Methods/ Statistical Methods; Teaching/Communication/Extension/Profession;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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