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Strategic Information Gathering Before a Contract Is Offered

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  • Crémer, Jacques
  • Khalil, Fahad
  • Rochet, Jean-Charles

Abstract

We study how optimal contracts are modified when the agent has the possibility to acquire information before the contract is offered to him. We consider a situation in which this information is always available to the agent just before producing. Therefore, prior information acquisition is socially wasteful, and conducted only for the purpose of rent seeking. In this context, we show that the typical outcome is one in which the agent randomizes between acquiring information or not. Therefore, the principal cannot perfectly anticipate whether the agent is informed or not, and has to offer two different contracts. One is designed for uninformed agents, the other is designed for informed agents.
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Suggested Citation

  • Crémer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1996. "Strategic Information Gathering Before a Contract Is Offered," IDEI Working Papers 61, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:1223
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    References listed on IDEAS

    as
    1. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-578, June.
    2. Lewis, Tracy R. & Sappington, David E. M., 1991. "All-or-nothing information control," Economics Letters, Elsevier, vol. 37(2), pages 111-113, October.
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    4. Cremer, Jacques & Khalil, Fahad, 1994. "Gathering information before the contract is offered: The case with two states of nature," European Economic Review, Elsevier, vol. 38(3-4), pages 675-682, April.
    5. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-930, July.
    6. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Contracts and Productive Information Gathering," Games and Economic Behavior, Elsevier, vol. 25(2), pages 174-193, November.
    7. Lewis Tracy R. & Sappington David E. M., 1993. "Ignorance in Agency Problems," Journal of Economic Theory, Elsevier, vol. 61(1), pages 169-183, October.
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    14. Lewis, Tracy R & Sappington David E M, 1993. "Choosing Workers' Qualifications: No Experience Necessary?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 479-502, August.
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    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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