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INFORMATION GATHERING BY A PRINCIPAL *
Author(s) -
Nosal Ed
Publication year - 2006
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2006.00407.x
Subject(s) - principal (computer security) , principal–agent problem , welfare , investment (military) , event (particle physics) , information structure , principal component analysis , computer science , business , economics , artificial intelligence , computer security , finance , political science , corporate governance , law , market economy , linguistics , philosophy , physics , quantum mechanics , politics
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.