On the Value of Public Predecision Information in Principal-Agent Models

28 Pages Posted: 13 Apr 1999

See all articles by Shiva Sivaramakrishnan

Shiva Sivaramakrishnan

Rice University

Ramji Balakrishnan

University of Iowa - Department of Accounting

Date Written: March 1999

Abstract

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

Sivaramakrishnan, Shiva and Balakrishnan, Ramji, On the Value of Public Predecision Information in Principal-Agent Models (March 1999). Available at SSRN: https://ssrn.com/abstract=159542 or http://dx.doi.org/10.2139/ssrn.159542

Shiva Sivaramakrishnan (Contact Author)

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

Ramji Balakrishnan

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0958 (Phone)
319-335-1956 (Fax)

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