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Gathering Information before signing a contract: A screening perspective

Author

Listed:
  • Olivier Compte

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique)

  • Philippe Jehiel

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, UCL - University College of London [London])

Abstract

A principal has to choose among several agents to fulfill a task and then provide the right incentives to perform it. Agents do not a priori know how competent they are for the task. It is shown that the principal should propose a contract that leads the agents to gather information about their competence prior to signing the contract. This insight is in sharp contrast with Crémer and Khalil [J. Crémer, F. Khalil: "Gathering information before signing a contract", American Economic Review, 82, 1992, 566-578] who consider a setup with one agent (or alternatively a setup with several agents in which the private information commonly applies to all agents). It emerges because, in our private value setup, information acquisition accompanied by a proper screening device increases the chance that the principal will pick a competent agent.

Suggested Citation

  • Olivier Compte & Philippe Jehiel, 2008. "Gathering Information before signing a contract: A screening perspective," PSE-Ecole d'économie de Paris (Postprint) halshs-00754311, HAL.
    • Handle: RePEc:hal:pseptp:halshs-00754311
    DOI: 10.1016/j.ijindorg.2006.11.002
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    Cited by:

    1. Justin Downs, 2021. "Information gathering by overconfident agents," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(3), pages 554-568, August.
    2. Iossa, Elisabetta & Martimort, David, 2015. "Pessimistic information gathering," Games and Economic Behavior, Elsevier, vol. 91(C), pages 75-96.
    3. Terstiege, Stefan, 2012. "Endogenous information and stochastic contracts," Games and Economic Behavior, Elsevier, vol. 76(2), pages 535-547.
    4. Prudence Dato, 2018. "Inducing e-waste sorting investment under imperfect information," Economics Bulletin, AccessEcon, vol. 38(1), pages 629-637.
    5. Terstiege, Stefan, 2016. "Gathering imperfect information before signing a contract," Games and Economic Behavior, Elsevier, vol. 97(C), pages 70-87.
    6. 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.
    7. Alberto Bennardo, 2008. "Information Gathering, Disclosure and Contracting in Competitive Markets," CSEF Working Papers 190, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    8. Terstiege, Stefan, 2011. "Randomization in contracts with endogenous information," Bonn Econ Discussion Papers 07/2011, University of Bonn, Bonn Graduate School of Economics (BGSE).
    9. Daniel L. Chen, 2015. "Can markets stimulate rights? On the alienability of legal claims," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 23-65, March.
    10. Olivier Compte & Philippe Jehiel, 2007. "Auctions and information acquisition: sealed bid or dynamic formats?," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 355-372, June.
    11. Martimort, David & Iossa, Elisabetta, 2013. "Hidden Action or Hidden Information? How Information Gathering Shapes Contract Design," CEPR Discussion Papers 9552, C.E.P.R. Discussion Papers.

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