Pessimistic information gathering |
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Affiliation: | 1. University of Rome Tor Vergata, Italy;2. CEPR, United Kingdom;3. IEFE-Bocconi and EIEF, Italy;4. Paris School of Economics—EHESS, France;1. Faculty of Industrial Engineering and Management, Technion – Israel Institute of Technology, Israel;2. Nuffield College and Department of Economics, University of Oxford, United Kingdom;1. Brown University, Department of Economics, Providence, RI, USA;2. Eitan Berglas School of Economics, Tel Aviv University and Economics Department, University of Michigan, USA;1. Queensland University of Technology, School of Economics and Finance, Australia;2. University of Essex, Department of Economics, Wivenhoe Park, CO4 3SQ Colchester, UK;1. Department of Economics, Brown University, United States;2. Eitan Berglas School of Economics, Tel-Aviv University, Israel;3. Economics Department, University of Michigan, United States |
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Abstract: | An agent gathers information on productivity shocks and accordingly produces on behalf of a principal. Information gathering is imperfect and whether it succeeds or not depends on the agent's effort. Contracting frictions come from the fact that the agent is pessimistic on the issue of information gathering, and there are both moral hazard in information gathering, private information on productivity shocks and moral hazard on operating effort. An optimal menu of linear contracts mixes high-powered, productivity-dependent screening options following “good news” with a fixed low-powered option otherwise. |
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Keywords: | Information gathering Moral hazard Asymmetric information Pessimism |
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