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The Generalized Informativeness Principle

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  • Pierre Chaigneau
  • Alex Edmans
  • Daniel Gottlieb

Abstract

This paper shows that the informativeness principle, as originally formulated by Holmstrom (1979), does not hold if the first-order approach is invalid. We introduce a "generalized informativeness principle" that takes into account non-local incentive constraints and holds generically, even without the first-order approach. Our result holds for both separable and non-separable utility functions.

Suggested Citation

  • Pierre Chaigneau & Alex Edmans & Daniel Gottlieb, 2014. "The Generalized Informativeness Principle," NBER Working Papers 20729, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20729
    Note: CF LE LS
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
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    4. Steven Shavell, 1979. "Risk Sharing and Incentives in the Principal and Agent Relationship," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 55-73, Spring.
    5. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    6. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    7. Frøystein Gjesdal, 1982. "Information and Incentives: The Agency Information Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(3), pages 373-390.
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    Cited by:

    1. Ewerhart, Christian, 2016. "An envelope approach to tournament design," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 1-9.

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    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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