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Contracts with Endogenous Information

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  • Dezso Szalay

    (Department of Economics, University of Warwick)

Abstract

I study covert information acquisition and reporting in a principal agent problem allowing for general technologies of information acquisition. When posteriors satisfy local versions of the standard First Order Stochastic Dominance and Concavity/Convexity of the Distribution Function conditions, a first-order approach is justified. Under the same conditions, informativeness and riskiness of reports are equivalent. High powered contracts, that make the agents informational rents more risky, are used to increase incentives for information acquisition, insensitive contracts are used to reduce incentives for information gathering. The value of information to the agent is always positive. The value of information to the principal is ambiguous.

Suggested Citation

  • Dezso Szalay, 2006. "Contracts with Endogenous Information," The Warwick Economics Research Paper Series (TWERPS) 780, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:780
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    More about this item

    Keywords

    Asymmetric Information ; Mechanism Design ; Information Acquisition ; Stochastic Ordering ; Value of Information;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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