Strategic obscurity in the forecasting of disasters |
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| Institution: | 1. Stockholm School of Economics, Box 6501, S-113 83 Stockholm, Sweden;2. Hanken School of Economics & HECER, P.O. Box 479, FI-00101 Helsinki, Finland;3. SITE, Stockholm School of Economics, Box 6501, S-113 83 Stockholm, Sweden;1. Department of Food and Resource Economics, University of Copenhagen, Rolighedsvej 25, DK-1958 Frederiksberg C., Denmark;2. Department of Economics, Adam Smith Business School, University of Glasgow, Glasgow G12 8QQ, Scotland, UK;1. Department of Government, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, United Kingdom;2. Faculty of Engineering, Information and Systems, University of Tsukuba, 1-1-1 Tennodai, Tsukuba, Ibaraki 305-8573, Japan;3. WZB Berlin Social Science Center, Reichpietschufer 50, D-10785 Berlin, Germany;4. Department of Economics, University of Heidelberg, Bergheimer Str. 58, 69115 Heidelberg, Germany;1. New York University, Stern, United States;2. University of Maryland, United States;3. New York University, CESS, United States |
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| Abstract: | A principal acquires information about a shock and then discloses it to an agent. After the disclosure, the principal and agent each decide whether to take costly preparatory actions that yield mutual benefits but only when the shock strikes. The principal maximizes his expected payoff by ex ante committing to the quality of his information, and the disclosure rule. We show that even when the acquisition of perfect information is costless, the principal may optimally acquire imperfect information when his own action eliminates the agent's incentive to take action against the risk. |
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| Keywords: | Endogenous information Disclosure Signal quality Transparency Specific investment Strategic ignorance |
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