 Delegated information acquisition with moral hazardHector Chade and Natalia Kovrijnykh Journal of Economic Theory, 2016, vol. 162, issue C, 55-92 Abstract: We analyze a principal–agent problem with moral hazard where a principal searches for an opportunity of uncertain return, and hires an agent to evaluate available options. The agent's effort affects the informativeness of a signal about an option's return. Based on the information provided by the agent, the principal decides whether to exercise the option at hand. We derive properties of the optimal contract in both static and dynamic versions of the problem. We show that there are intermediate values of the prior probability that the option is of high quality at which positive effort cannot be sustained. We also show that if the prior is below a threshold, then the agent is rewarded for delivering ‘bad news’ about the option's quality. We derive distortions (relative to the first best) on the implemented effort level and optimal stopping decision. For some parameter values, it is optimal for the principal to commit to an ex-post suboptimal stochastic decision to exercise an option. Keywords: Moral hazard; Principal–agent model; Optimal contracts; Information acquisition; Search; Lotteries (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:162:y:2016:i:c:p:55-92 DOI: 10.1016/j.jet.2015.12.003 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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