Ex Ante Information in Adverse Selection

11 Pages Posted: 11 Jun 2010 Last revised: 29 Mar 2011

See all articles by Mikhail Drugov

Mikhail Drugov

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

Date Written: March 8, 2011

Abstract

This paper studies the effects of the signal available before a standard Baron-Myerson contracting takes place. It shows that, while the principal's profits increase with the quality of the signal, the agent's rent also increases if the signal concerns the realizations where the principal is optimistic about the agent's type. When the signal concerns the realizations where the principal is pessimistic about the agent's type, the social welfare decreases.

Keywords: Information, Adverse Selection

JEL Classification: D82, D83

Suggested Citation

Drugov, Mikhail, Ex Ante Information in Adverse Selection (March 8, 2011). Available at SSRN: https://ssrn.com/abstract=1623823 or http://dx.doi.org/10.2139/ssrn.1623823

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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