Information and Delay in an Agency Model
Univerity of Oxford Department of Economics Working Paper No. 298
31 Pages Posted: 13 Nov 2007 Last revised: 19 Aug 2010
Date Written: February 14, 2010
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, as is shown by Wang (1998). 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.
Keywords: Information, adverse selection, delay, bargaining
JEL Classification: C78, D82, D83, L51
Suggested Citation: Suggested Citation