Observability of information gathering in agency models

Eva I. Hoppe

MPRA Paper from University Library of Munich, Germany

Abstract: We consider an adverse selection model in which the agent can gather private information before the principal offers the contract. There are two scenarios. In scenario I, information gathering is a hidden action, while in scenario II, the principal observes the agent's information gathering decision. We study how the two scenarios differ with respect to the agent's expected rent, the principal's expected profit, and the expected total surplus. In particular, it turns out that the principal may be better off when the agent's information gathering decision is a hidden action.

Keywords: Hidden information; adverse selection; information gathering (search for similar items in EconPapers)
JEL-codes: C72 D82 D86 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-ict and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:43647

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