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Information and Delay in an Agency Model

  • Mikhail Drugov

Negotiations often take long a time even if a delay in the agreement is inefficient. One typical explanation is the existence of private information of at least one party; the time is then a discriminating instrument. The paper starts by pointing out that this result does not hold once the traded quantity is not fixed as in most bargaining models; the quantity outperforms the time as a discriminating instrument, that is, there is no delay. Moreover, Coase conjecture does not hold either. We then study how a signal arriving in the course of negotiations affects the delay in the agreement. Unlike investment-under-uncertainty models, a better signal not only improves contracting in the future but also in the present. Therefore, the delay is in general not monotonic in the quality of information. The value of information can be negative over some range as better information may aggravate the principal`s commitment problem.

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File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper298.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 298.

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Date of creation: 01 Dec 2006
Handle: RePEc:oxf:wpaper:298
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