Optimal Information Revelation by Informed Investors

Roland Strausz ()

No 34, Discussion Papers from SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: This paper studies the structure of optimal finance contracts in an agency model of outside finance, when investors possess private information. We show that, depending on the intensity of the entrepreneur's moral hazard problem, optimal contracts induce full, partial, or no revelation of the investor's private information. A partial or nonrevelation of information is optimal, when it mitigates an undersupply of effort by the entrepreneur due to moral hazard.

Keywords: informed investors; optimal finance contracts; partial information revelation (search for similar items in EconPapers)
JEL-codes: G24 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: Written
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