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Information and Delay in an Agency Model

  • Mikhail Drugov
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    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
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    Handle: RePEc:oxf:wpaper:298
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    Web page: http://www.economics.ox.ac.uk/
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    1. Laffont, Jean-Jacques & Tirole, Jean, 1987. "Comparative statics of the optimal dynamic incentive contract," European Economic Review, Elsevier, vol. 31(4), pages 901-926, June.
    2. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
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    4. Bagholi, M. & Salant, S.W. & Swierzbinski, J.E., 1992. "Intertemporal Self-Selection with Multiple Buyers Under Complete and Incomplete Information," Papers 92-05, Michigan - Center for Research on Economic & Social Theory.
    5. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-98, July.
    6. Wang, Gyu Ho, 1998. "Bargaining over a Menu of Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 295-305, April.
    7. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    8. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
    9. Sobel, Joel & Takahashi, Ichiro, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 411-26, July.
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