Gathering imperfect information before signing a contract

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Abstract

I study information gathering for rent-seeking purposes in contracting. In my model, an agent learns his payoff type only after accepting a contract, but can at costs acquire imperfect information while deliberating whether to accept. I show that the principal deters the acquisition if and only if the costs are high. The result stands in contrast to a finding by Cremer and Khalil (1992), who demonstrate that the acquisition of perfect information will always be deterred. A key insight is that the case of imperfect information is an instance of a sequential-screening problem. (C) 2016 Elsevier Inc. All rights reserved.

Original languageEnglish
Pages (from-to)70-87
Number of pages18
JournalGames and Economic Behavior
Volume97
DOIs
Publication statusPublished - May 2016

Keywords

  • Principal agent
  • Information acquisition
  • Rent seeking
  • Sequential screening
  • MECHANISM DESIGN
  • OPTIMAL AUCTIONS
  • ACQUISITION

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