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Direct sale of information when precision is unobservable

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  • Saltuk Ozerturk

Abstract

. This paper studies the incentives of an information seller to provide precise information when precision is not observable and investors with rational expectations can extract information from the equilibrium asset price. I show that the seller can verify her precision by employing a non‐linear contract. I derive the equilibrium fee for information as a function of the seller's incentives, the sales volume, and buyers’ trading intensity. I also analyse the implications of allowing the seller to trade on her own account for truthfulness and precision choice. JEL Classification: G11, G14, D42 La vente directe d’information quand la précision n’est pas observable. Ce mémoire étudie les incitations d’un vendeur d’information à fournir de l’information précise quand la précision n’est pas observable et que des investisseurs qui ont des anticipations rationnelles peuvent extraire de l’information du prix d’équilibre d’un actif. L’auteur montre que le vendeur peut vérifier sa précision à l’aide d’un contrat non linéaire, et dérive le prix d’équilibre pour l’information comme fonction des incitations du vendeur, du volume de ventes, et de l’intensité de transactions des acheteurs. On analyse aussi les implications qu’entraîne la possibilité pour le vendeur de transiger pour son propre compte sur le choix du degré de précision et de vérité.

Suggested Citation

  • Saltuk Ozerturk, 2004. "Direct sale of information when precision is unobservable," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(2), pages 269-293, May.
  • Handle: RePEc:wly:canjec:v:37:y:2004:i:2:p:269-293
    DOI: 10.1111/j.0008-4085.2004.00002.x
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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