Entrepreneur-Investor Information Design

Oleg Muratov

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: I consider an environment in which an entrepreneur generates information about the quality of his projects prior to contracting with an investor. The investor faces a moral hazard problem since the entrepreneur may divert the funding for private consumption. I find that the efficient amount of information is generated if and only if the bargaining power of the entrepreneur is high enough. I interpret this result in terms of investors tightness, competi- tiveness, and generosity measures. I also show that the investor prefers not to have all the bargaining power when the project costs are high enough.

Date: 2020-08
New Economics Papers: this item is included in nep-ent, nep-mic and nep-ppm
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