Information Processing and Limited Liability

Mirko Wiederholt () and Bartosz Maćkowiak

No 1140, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: Decision-makers often face limited liability and thus know that their loss will be bounded. We study how limited liability affects the behavior of an agent who chooses how much information to acquire and process in order to take a good decision. We find that an agent facing limited liability processes less information than an agent with unlimited liability. The informational gap between the two agents is larger in bad times than in good times and when information is more costly to process.

Date: 2013
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Journal Article: Information Processing and Limited Liability (2012)
Working Paper: Information Processing and Limited Liability (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:1140

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