On the Value of Public Predecision Information in Principal-Agent Models
28 Pages Posted: 13 Apr 1999
Date Written: March 1999
We examine the principal's preference for a public predecision information system that produces a signal about a parameter of the firm's production function. We show that the discreteness of action space plays a crucial role in establishing the principal's preference for suppressing the release of public information. Without this discreteness, the principal strictly prefers to install the information system provided that the second best action policy is always interior. We use a numerical example to demonstrate that the negative result can obtain even with continuous action choice so long as the action choice is not interior for at least one of the information signals.
JEL Classification: M41, M45
Suggested Citation: Suggested Citation