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Delegated Search: Procedure Matters

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  • Peter Postl

Abstract

This paper studies incentive contracts for information acquisition. In the situations considered, a principal must choose between two alternatives with unknown payoffs. There is an agent who can find them out at a fixed cost per alternative. His effort and any information acquired are unobservable. The principal observes only the payoff associated with her chosen alternative, and hence the agent has the incentive to overstate total cost by strategically finding out only one of the two payoffs and lying about the other. I identify a condition under which the first best is attainable. If this condition is not satisfied, there may be an efficiency loss from agency despite full surplus extraction.

Suggested Citation

  • Peter Postl, 2004. "Delegated Search: Procedure Matters," Discussion Papers 04-17, Department of Economics, University of Birmingham.
    • Handle: RePEc:bir:birmec:04-17
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    File URL: https://repec.cal.bham.ac.uk/pdf/04-17.pdf
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    References listed on IDEAS

    as
    1. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-654, May.
    2. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    3. Demski, Js & Sappington, Dem, 1987. "Delegated Expertise," Journal of Accounting Research, Wiley Blackwell, vol. 25(1), pages 68-89.
    4. David E. M. Sappington, 1991. "Incentives in Principal-Agent Relationships," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 45-66, Spring.
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    More about this item

    Keywords

    Contracts; Optimal Search; Information Acquisition;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • 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

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