Information and Delay in an Agency Model

RAND Journal of Economics, Vol. 41, No. 3, pp. 598–615, Autumn 2010

Univerity of Oxford Department of Economics Working Paper No. 298

31 Pages Posted: 13 Nov 2007 Last revised: 19 Aug 2010

See all articles by Mikhail Drugov

Mikhail Drugov

Centre for Economic Policy Research (CEPR); New Economic School (NES)

Date Written: February 14, 2010

Abstract

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

Drugov, Mikhail, Information and Delay in an Agency Model (February 14, 2010). RAND Journal of Economics, Vol. 41, No. 3, pp. 598–615, Autumn 2010, Univerity of Oxford Department of Economics Working Paper No. 298, Available at SSRN: https://ssrn.com/abstract=1028475

Mikhail Drugov (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

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