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Randomization in contracts with endogenous information

  • Stefan Terstiege

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    I consider a situation, where the agent can acquire payoff-relevant information either before or after the contract is signed. To raise efficiency, the principal might solicit information; to retain all surplus, however, she must prevent precontractual information gathering. The following class of stochastic contracts may solve this trade-off optimally: before signing, information acquisition is not solicited, and afterwards randomly. The key insight is that randomization makes precontractual information costlier for the agent.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse07_2011.pdf
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    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse07_2011.

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    Length: 25
    Date of creation: Jun 2011
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse07_2011
    Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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    Web page: http://www.bgse.uni-bonn.de

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    1. Roland Strausz, . "Deterministic versus Stochastic Mechanisms in Principal--Agent Models," Papers 020, Departmental Working Papers.
    2. Szalay, Dezsö, 2009. "Contracts with endogenous information," Games and Economic Behavior, Elsevier, vol. 65(2), pages 586-625, March.
    3. Cremer, J. & Khalil, F. & Rochet, J-C., 1997. "Contracts and Productive Information Gathering," Papers 97.468, Toulouse - GREMAQ.
    4. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-78, June.
    5. Lewis, Tracy R & Sappington, David E M, 1997. "Information Management in Incentive Problems," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 796-821, August.
    6. Compte, Olivier & Jehiel, Philippe, 2008. "Gathering information before signing a contract: A screening perspective," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 206-212, January.
    7. Anke Kessler, 1998. "The Value of Ignorance," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 339-354, Summer.
    8. 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.
    9. Rasul, Imran & Sonderegger, Silvia, 2010. "The role of the agent's outside options in principal-agent relationships," Games and Economic Behavior, Elsevier, vol. 68(2), pages 781-788, March.
    10. Kovác, Eugen & Mylovanov, Tymofiy, 2009. "Stochastic mechanisms in settings without monetary transfers: The regular case," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1373-1395, July.
    11. Roger B. Myerson, 1984. "Multistage Games with Communication," Discussion Papers 590, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    12. repec:cup:cbooks:9780521585293 is not listed on IDEAS
    13. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
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