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Optimal Obscurity in the Acquisition and Disclosure of Information about a Shock

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  • Masaki Aoyagi

Abstract

A principal acquires information about a shock and then discloses it to an agent. After the disclosure, the principal and agent each decide whether to take costly preparatory actions that yield benefits only when the shock strikes. The principal maximizes his expected payoff by controlling the quality of his information, and the disclosure rule. We show that even when the acquisition of perfect information is costless, the principal may optimally acquire imperfect information when his own action eliminates the agent's incentive to take action against the risk.

Suggested Citation

  • Masaki Aoyagi, 2012. "Optimal Obscurity in the Acquisition and Disclosure of Information about a Shock," ISER Discussion Paper 0832, Institute of Social and Economic Research, The University of Osaka.
    • Handle: RePEc:dpr:wpaper:0832
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    File URL: https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2012/DP0832.pdf
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    References listed on IDEAS

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    1. Brookshire, David S & Thayer. Mark A & Tschirhart, John & Schulze, William D, 1985. "A Test of the Expected Utility Model: Evidence from Earthquake Risks," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 369-389, April.
    2. Howe, Charles W & Cochrane, Harold C, 1976. "A Decision Model for Adjusting to Natural Hazard Events with Application to Urban Snow Storms," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 50-58, February.
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