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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," LSE Research Online Documents on Economics 102226, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:102226
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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:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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