Information Gathering By a Principal

19 Pages Posted: 28 Oct 2006

See all articles by Ed Nosal

Ed Nosal

Federal Reserve Banks - Federal Reserve Bank of Atlanta

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Abstract

In the standard principal-agent model, the information structure is fixed. In this article the principal can choose to acquire additional information about the state of the world before he contracts with an agent. In the event that the principal acquires this information, the agent never learns what the principal knows about the state of the world. I examine cases where the agent can and cannot observe whether the principal has acquired the additional information. The implications for risk sharing, information acquisition, investment, and welfare are examined for both cases.

Suggested Citation

Nosal, Ed, Information Gathering By a Principal. International Economic Review, Vol. 47, No. 4, pp. 1093-1111, November 2006. Available at SSRN: https://ssrn.com/abstract=940689 or http://dx.doi.org/10.1111/j.1468-2354.2006.00407.x

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