Strategic transmission of information and short-term commitment

Theofanis Tsoulouhas and Charles Kahn

Economic Theory, 1999, vol. 14, issue 1, 153 pages

Abstract: We examine the strategic role of information transmission in a repeated principal-agent relationship where the agent produces information that is useful to the principal. The agent values continuous employment for the principal because he makes a relationship-specific investment that can yield rents to him when the relationship is renewed. Assuming that the parties are sufficiently impatient, we show that full disclosure of the information produced occurs early in the relationship when the principal can commit to a long-term relationship, when the agent observes his valuation of continuous employment after making a report on information produced, or when the agent obtains a low valuation of continuous employment before making a report. By contrast, a strategic delay in the transmission of information occurs when the principal can only commit to a short-term relationship and the agent obtains a high valuation of continuous employment before making a report.

Keywords: Repeated principal-agent relationship; Adverse selection; Information transmission. (search for similar items in EconPapers)
JEL-codes: D81 D82 (search for similar items in EconPapers)
Date: 1999-07-08
Note: Received: October 15, 1997; revised version: July 27, 1998
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Citations: View citations in EconPapers (2)

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