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Information and delay in an agency model
Author(s) -
Drugov Mikhail
Publication year - 2010
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2010.00113.x
Subject(s) - agency (philosophy) , signal (programming language) , private information retrieval , principal (computer security) , benchmark (surveying) , economics , agency cost , microeconomics , welfare , margin (machine learning) , quality (philosophy) , principal–agent problem , social welfare , econometrics , computer science , control theory (sociology) , finance , computer security , market economy , corporate governance , philosophy , control (management) , geodesy , epistemology , management , machine learning , political science , law , shareholder , programming language , geography
This article studies how delay in contracting depends on an exogenous signal. The agent whose cost is his private information may produce in the first period or be delayed until the second period. A signal about the cost of the agent is available between the two periods. The quality of the good can vary; in the benchmark case of no signal, the principal offers the standard Baron‐Myerson contract and there is no delay. Delay is determined by the considerations at the margin and may increase or decrease with a better signal. The value of information can be negative, as a better signal may aggravate the principal's commitment problem. A better signal may also increase the agent's rent and decrease social welfare.