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The value of information in a principal–agent model with moral hazard: The ex post contracting case

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  • Silvers, Randy

Abstract

In a principal–agent model with moral hazard, a signal about the principalʼs technology — the stochastic mapping from the agentʼs action to the outcome — is observed before the contract is offered. The signal is either uninformative (null information), informative and observed only by the principal (private information), or also observed by the agent (public information). We show that, from an ex ante standpoint (before the signal is observed): (i) the agent prefers private to both null and public information; (ii) the principal sometimes prefers null to both private and public information; and (iii) when the principal prefers public to null information, she prefers public to private information, whereas the agent prefers private to public information. In this last situation, we also show that (iv) for any separating equilibrium with private information, there exists a contract with public information that both strictly prefer.

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  • Silvers, Randy, 2012. "The value of information in a principal–agent model with moral hazard: The ex post contracting case," Games and Economic Behavior, Elsevier, vol. 74(1), pages 352-365.
    • Handle: RePEc:eee:gamebe:v:74:y:2012:i:1:p:352-365
    DOI: 10.1016/j.geb.2011.07.002
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    More about this item

    Keywords

    Moral hazard; Principal–agent; Informed principal; Information; Technology; Ex post contracting;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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