The Price of Advice

Balazs Szentes and Peter Eso ()

No 560, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: We develop a model of consulting (advising) where the role of the consultant is that she can reveal signals to her client which refine the client’s original private estimate of the profitability of a project. Importantly, only the client can observe or evaluate these signals (“clues†), the consultant cannot. We characterize the optimal contract between the consultant and her client. It is a menu consisting of pairs of transfers specifying payments between the two parties (from the client to the consultant or vice versa) in case the project is undertaken by the client and in case it is not. The main result of the paper is that in the optimal mechanism, the consultant obtains the same profit as if she could observe the signals whose release she controls.

Keywords: Mechanism Design; Information Disclosure; Consulting; Advising (search for similar items in EconPapers)
JEL-codes: C72 D49 D82 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: The Price of Advice (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:nasm04:560

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