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 characterize optimal contracts by reducing the problem to information design with cost constraints. The principal induces investment below a cutoff in its sunk cost. With two cost types, investment may be underprovided but is never excessive relative to the first best. With more types, the cutoff property survives but overinvestment can occur. Investment incentives also reshape information acquisition: optimal experiments may need to generate more distinct beliefs than there are possible states, and their design can be sensitive to the principal's initial beliefs.

Date: 2026-09, Revised 2026-09
New Economics Papers: this item is included in nep-des and nep-mic
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