Working Paper

Information gathering by a principal

Abstract: In the standard principal-agent model, the information structure is fixed. In this paper allow the principal to choose his level of informedness before he contracts with the agent. During the contracting phase, the agent never learns what the principal knows about the state of the world. I examine the cases where the agent observes and does not observe the level of informedness that the principal chooses. The strategic nature of the model environment implies that there are both direct and indirect costs associated with the existence of high quality information. The implications for information gathering, investment and welfare are examined for both cases.

Keywords: Information theory;

https://doi.org/10.26509/frbc-wp-200307

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 2003

Number: 0307