INFORMATION GATHERING BY A PRINCIPAL

Ed Nosal

International Economic Review, 2006, vol. 47, issue 4, 1093-1111

Abstract: In the standard principal-agent model, the information structure is fixed. In this article the principal can choose to acquire additional information about the state of the world before he contracts with an agent. In the event that the principal acquires this information, the agent never learns what the principal knows about the state of the world. I examine cases where the agent can and cannot observe whether the principal has acquired the additional information. The implications for risk sharing, information acquisition, investment, and welfare are examined for both cases. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2006
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