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Optimal Design of Internal Disclosure

Author

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  • Dmitry Orlov

    (Stanford Graduate School of Business)

Abstract

This paper studies the joint design of optimal incentive pay and information disclosure in a dynamic moral hazard problem. The principal is more informed about the outcomes of agent's actions and actively manages information available to the agent. Sharing information with the agent increases productivity (for example, allowing a better allocation of resources or effort), but increases the cost of providing incentives. The optimal contract features incomplete information sharing with positive information shared more than negative information and past negative information leading to less information sharing in the future.

Suggested Citation

  • Dmitry Orlov, 2014. "Optimal Design of Internal Disclosure," 2014 Meeting Papers 314, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:314
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    References listed on IDEAS

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