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Contracts with endogenous information

By Dezsö Szalay


I study covert information acquisition and reporting in a principal agent problem allowing for\ud general technologies of information acquisition. When posteriors satisfy two dimensional versions\ud of the standard First Order Stochastic Dominance and Concavity/Convexity of the Distribution\ud Function conditions, a first-order approach is justfied. Under the same conditions, informativeness\ud and riskiness of reports are equivalent. High powered contracts, that make the agent's informational\ud rents more risky, are used to increase incentives for information acquisition, insensitive contracts\ud are used to reduce incentives for information gathering. The value of information to the agent is\ud always positive. The value of information to the principal is ambiguous

Topics: HB
Publisher: Unpublished
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