Economics at your fingertips  

Contracting for information: on the effects of the principal's outside option

Franck Bien and Thomas Lanzi ()
Additional contact information
Franck Bien: LEDa - Laboratoire d'Economie de Dauphine - CNRS - Centre National de la Recherche Scientifique - IRD - Institut de Recherche pour le Développement - Université Paris-Dauphine

Working Papers from HAL

Abstract: We study optimal contracting in a communication setting in which an uninformed principal has the opportunity to undertake an outside option if an informed agent refuses the contract. The contract specifies a decision rule and a transfer for each unit of information revealed by the agent. Due to the existence of the outside option, the informational rent isnonmonotonic, and we characterize the properties of the optimal contract. We show that the outside option becomes a credible threat for the agent because it allows the principal to punish him severely with negative transfers. Moreover, we compare our optimal contract to the one under perfect commitment without an outside option developed by Krishna and Morgan [2008]. We find that regardless of the divergence of preferences between the principal andthe agent, the contract with an outside option is always better for the principal. Moreover, we show that the threat of using an outside option increases information extraction.

Keywords: Transfers; Outside option; Communication; Mechanism Design (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-mic
Date: 2017-03-17
Note: View the original document on HAL open archive server:
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

Page updated 2020-01-17
Handle: RePEc:hal:wpaper:hal-01491912