ENTREPRENEUR–INVESTOR INFORMATION DESIGN

Oleg Muratov

International Economic Review, 2023, vol. 64, issue 4, 1431-1467

Abstract: I consider an environment in which an entrepreneur generates information about the quality of his project 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, competitiveness, 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: 2023
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