Delegation and Information Disclosure with Unforeseen Contingencies

Lei Haoran () and Xiaojian Zhao
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Lei Haoran: School of Economics and Trade, Hunan University, Changsha, China

The B.E. Journal of Theoretical Economics, 2021, vol. 21, issue 2, 637-656

Abstract: We incorporate unawareness into the delegation problem between a financial expert and an investor, and study their pre-delegation communication. The expert has superior awareness of the possible states of the world, and decides whether to reveal some of them to the investor. We find that the expert reveals all the possible states to the investor if the investor is initially aware of a large set of possible states, but reveals partially or nothing otherwise. An investor with a higher degree of unawareness tends to delegate a larger set of projects to the expert, giving rise to a higher incentive for the expert to keep her unaware.

Keywords: delegation; unforeseen contingencies; unawareness; financial advice (search for similar items in EconPapers)
JEL-codes: D82 D83 D86 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1515/bejte-2018-0184

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