Interim Information in Long Term Contracts
This paper studies the effectiveness of interim information in reducing inefficiencies in long term relationships. If the interim information is verifiable, it resolves all problems of asymmetric information. Under nonverifiability, the information alleviates the contracting problem only partially and its optimal use depends on the signalâ€™s accuracy and timing. Precise and early signals enable the principal to extract all rents and adjust allocations closer to the first best. Imprecise or late signals affect only future allocations and leaves the agent with a rent. Due to a failure of the revelation principle, the optimal contract under nonâ€“verifiability is derived by employing the theory of communication equilibrium.
|Date of creation:||Apr 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Geschwister-Scholl-Platz 1, D-80539 Munich, Germany|
Web page: http://www.sfbtr15.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- R. Gary-Bobo & Y. Spiegel, 2003.
"Optimal state-contingent regulation under limited liability,"
THEMA Working Papers
2003-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Robert Gary‐Bobo & Yossi Spiegel, 2006. "Optimal state‐contingent regulation under limited liability," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 431-448, 06.
- Gary-Bobo, Robert J. & Spiegel, Yossi, 2003. "Optimal State-Contingent Regulation under Limited Liability," CEPR Discussion Papers 3920, C.E.P.R. Discussion Papers.
- Forges, F., 1984.
"An approach to communication equilibria,"
CORE Discussion Papers
1984035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Cooper, Russell & Hayes, Beth, 1987. "Multi-period insurance contracts," International Journal of Industrial Organization, Elsevier, vol. 5(2), pages 211-231.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
- Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
- Laffont, Jean-Jacques & Tirole, Jean, 1988.
"The Dynamics of Incentive Contracts,"
Econometric Society, vol. 56(5), pages 1153-75, September.
- Laffont, Jean-Jacques & Tirole, Jean., 1988.
"Adverse Selection and Renegotiation in Procurement,"
665, California Institute of Technology, Division of the Humanities and Social Sciences.
- Jean-Jacques Laffont & Jean Tirole, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 597-625.
- Jean-Jacques LAFFONT & Jean TIROLE, 1990. "Adverse Selection and Renegotiation in Procurement," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9005, Université de Lausanne, Faculté des HEC, DEEP.
- Roland Strausz, 1997.
"Delegation of Monitoring in a Principal-Agent Relationship,"
Review of Economic Studies,
Oxford University Press, vol. 64(3), pages 337-357.
- Strausz, R.G., 1995. "Delegation of Monitoring in a Principal-Agent Relationship," Discussion Paper 1995-60, Tilburg University, Center for Economic Research.
- Baron, David P & Myerson, Roger B, 1982.
"Regulating a Monopolist with Unknown Costs,"
Econometric Society, vol. 50(4), pages 911-30, July.
- Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
- Riordan, Michael H. & Sappington, David E. M., 1988. "Optimal contracts with public ex post information," Journal of Economic Theory, Elsevier, vol. 45(1), pages 189-199, June.
- Myerson, Roger B, 1986.
"Multistage Games with Communication,"
Econometric Society, vol. 54(2), pages 323-58, March.
- Anke S. Kessler & Christoph Lülfesmann & Patrick W. Schmitz, 2005. "Endogenous Punishments In Agency With Verifiable Ex Post Information ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1207-1231, November.
- 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.
- Dominique M. Demougin & Devon A. Garvie, 1991.
"Contractual Design with Correlated Information under Limited Liability,"
RAND Journal of Economics,
The RAND Corporation, vol. 22(4), pages 477-489, Winter.
- Dominique M. Demougin & Devon a. Garvie, 1991. "Contractual Design with Correlated Information Under Limited Liability," Working Papers 815, Queen's University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:40. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg)
If references are entirely missing, you can add them using this form.