Download This PaperInvestment and Information Acquisition
46 Pages Posted: 17 Apr 2020
Date Written: March 28, 2020
Abstract
We study the interaction between productive investment and persuasion activities in a principal-agent setting with strategic disclosure. In an attempt to persuade the principal, the agent diverts substantial resources from productive activities to information acquisition for persuasion, even though productive activities are more efficient and raise the chances of success in persuasion. We show that a higher cost of an investment project results in a lower productive investment. We further demonstrate how a commitment by the agent to disclose all acquired information, or a commitment by the principal to a decision rule, curtail the inefficiency and stimulate productive investment.
Keywords: information acquisition, persuasion, strategic disclosure, investment
JEL Classification: D24, D82, D83, M31
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