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The Value of Preference Information in Agency Relationships

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  • Rudolf Vetschera

    (University of Vienna)

Abstract

Standard models of agency theory often assume that the principal has complete information about the preferences of the agent. This paper starts from the assumption of incomplete information on the agent&2018;s preferences and models a situation where the principal can obtain additional preference information before concluding a contract with the agent. We introduce the concept of a Value of Preference Information (VPI), which describes the benefits to the principal from obtaining such information. This information can be obtained either before or after the principal knows the precise structure of the decision problems which will be delegated to the agent. Analytic and simulation techniques are used to study factors influencing the VPI in these two situations.

Suggested Citation

  • Rudolf Vetschera, 1999. "The Value of Preference Information in Agency Relationships," Computational and Mathematical Organization Theory, Springer, vol. 5(4), pages 343-360, December.
    • Handle: RePEc:spr:comaot:v:5:y:1999:i:4:d:10.1023_a:1009694517754
    DOI: 10.1023/A:1009694517754
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    References listed on IDEAS

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