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The informativeness principle without the first-order approach

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  • Chaigneau, Pierre
  • Edmans, Alex
  • Gottlieb, Daniel

Abstract

Holmström (1979) provides a condition for a signal to have positive value assuming the validity of the first-order approach. This paper extends Holmström's analysis to settings where the first-order approach may not hold. We provide a new condition for a signal to have positive value that takes non-local incentive constraints into account and holds generically. Our condition is the weakest condition possible in the absence of restrictions on the utility function.

Suggested Citation

  • Chaigneau, Pierre & Edmans, Alex & Gottlieb, Daniel, 2019. "The informativeness principle without the first-order approach," Games and Economic Behavior, Elsevier, vol. 113(C), pages 743-755.
    • Handle: RePEc:eee:gamebe:v:113:y:2019:i:c:p:743-755
    DOI: 10.1016/j.geb.2018.08.006
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    1. Garrett, Daniel F. & Georgiadis, George & Smolin, Alex & Szentes, Balázs, 2023. "Optimal technology design," Journal of Economic Theory, Elsevier, vol. 209(C).

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    More about this item

    Keywords

    Contract theory; Principal-agent model; Informativeness principle;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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