Contracting for Information: Heterogeneous Costs and Investment Opportunities

Han Wang

Papers from arXiv.org

Abstract: A principal faces a decision problem under uncertainty and can contract with a researcher to provide relevant information. The cost of acquiring information is only known to the researcher, and, moreover, by privately making an investment the researcher can reduce their expected cost. We show that this contracting problem can be viewed as an information design problem with cost constraints and use techniques from that literature to solve for the optimal contract. The principal never overinvests but may underprovide investment even when it is efficient. We establish a cutoff in the cost of investment below which the principal induces investment and show that this cutoff is higher for a better investment opportunity, in the sense that the post-investment distribution of costs improves in the monotone-likelihood-ratio order.

Date: 2026-09
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