The Economics of Clear Advice and Extreme Options | Zendy

Szalay Dezsö | Zendy

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The Economics of Clear Advice and Extreme Options

Author(s) -

Szalay Dezsö

Publication year - 2005

Publication title -

review of economic studies

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 15.641

H-Index - 141

eISSN - 1467-937X

pISSN - 0034-6527

DOI - 10.1111/0034-6527.00366

Subject(s) - incentive , advice (programming) , economics , principal (computer security) , ranking (information retrieval) , action (physics) , verifiable secret sharing , principal–agent problem , set (abstract data type) , microeconomics , ex ante , moral hazard , risk aversion (psychology) , mathematical economics , risk neutral , econometrics , computer science , expected utility hypothesis , finance , computer security , artificial intelligence , corporate governance , physics , quantum mechanics , macroeconomics , programming language

I study a principal–agent model in which the agent collects information and then chooses a verifiable action. I show that the principal can find it desirable to constrain the agent's action set even though there is no disagreement about the ranking of actions ex post . The elimination or penalization of „intermediate” actions, which are optimal when information is poor, improves incentives for information collection. I characterize optimal action sets when the agent is infinitely risk averse with respect to income shocks and optimal incentive schemes when the agent is risk neutral.

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