Uncertainty and information accuracy in adverse selection

Samuel C.A. Pereira and Paulo S.A. Sousa

Economics Letters, 2008, vol. 100, issue 3, 321-325

Abstract: We extend Lewis and Sappington [Lewis, T., Sappington, D., 1991, All-or-nothing information control, Economics Letters 37, 111-113] analysis by exploring the effect of the uncertainty about the state of nature on the principal decision with respect to the signal, perfect or imperfect, the agent receives. We show that when the principal output elasticity of value is not too low, there is a level of uncertainty that separates the two cases.

Date: 2008
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