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When does it pay to get informed?

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  • Ayca Kaya

    (University of Iowa)

Abstract

I analyze a repeated principal-agent model where there is uncertainty about the technology of production and where the principal has the means to acquire information about this technology. I show that, even when information acquisition is costless, the principal may not wish to get informed. What drives this, is the fact that the principal is forced to engage in costly signaling after acquiring information, because the agent interprets no signaling as bad news.

Suggested Citation

  • Ayca Kaya, 2007. "When does it pay to get informed?," 2007 Meeting Papers 572, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:572
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    Cited by:

    1. Pio Baake & Andreas Harasser & Friederike Heiny, 2016. "Information Acquisition in Vertical Relations," Discussion Papers of DIW Berlin 1543, DIW Berlin, German Institute for Economic Research.
    2. Nicholas Charles Bedard, 2017. "Contracts in informed-principal problems with moral hazard," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(1), pages 21-34, April.
    3. Schumacher, Heiner & Thysen, Heidi Christina, 2022. "Equilibrium contracts and boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 17(1), January.
    4. Bedard, Nicholas C., 2017. "The strategically ignorant principal," Games and Economic Behavior, Elsevier, vol. 102(C), pages 548-561.
    5. Chen, Bin R., 2015. "Subjective performance feedback, ability attribution, and renegotiation-proof contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 155-174.
    6. Wagner, Christoph & Mylovanov, Tymofiy & Tröger, Thomas, 2015. "Informed-principal problem with moral hazard, risk neutrality, and no limited liability," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 280-289.
    7. Bin R. Chen & Sanxi Li, 2018. "Prehire Screening and Subjective Performance Evaluations," Management Science, INFORMS, vol. 64(10), pages 4953-4965, October.
    8. Mylovanov, Timofiy & Troger, Thomas E., 2012. "Informed principal problems in generalized private values environments," Theoretical Economics, Econometric Society, vol. 7(3), September.
    9. Baake Pio & Harasser Andreas & Heiny Friederike, 2017. "Information Acquisition in Vertical Relations," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(1), pages 1-13, February.
    10. McLeod, Alex, 2021. "Discovery, disclosure, and confidence," International Review of Law and Economics, Elsevier, vol. 66(C).

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