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The Value of Information in an Agency Model with Moral Hazard

In a principal-agent environment with moral hazard and symmetric information, having or acquiring a more informative technology lowers the cost to implement a given action. Contracting may occur after or before the principal learns her technology. We show that when the principal has or will acquire private information about her technology, (i) with ex post contracting, the value of information for the principal may be negative; and (ii) although the agent prefers that the principal has private information with ex post contracting, ex ante contracting is superior to ex post contracting by the Potential Pareto Criterion.

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Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2006_22.

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Length: 32 pages
Date of creation: 16 Nov 2006
Date of revision:
Handle: RePEc:dkn:econwp:eco_2006_22
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