The Informativeness Principle Without the First-Order Approach

39 Pages Posted: 19 Nov 2014 Last revised: 28 Aug 2018

See all articles by Pierre Chaigneau

Pierre Chaigneau

Queen's University

Alex Edmans

London Business School - Institute of Finance and Accounting; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Daniel Gottlieb

London School of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: August 15, 2018

Abstract

Holmström (1979) provides a condition for a signal to have positive value assuming the validity of the first-order approach. This paper extends Holmström's analysis to settings where the first-order approach may not hold. We provide a new condition for a signal to have positive value that takes non-local incentive constraints into account and holds generically. Our condition is the weakest condition possible in the absence of restrictions on the utility function.

Keywords: Contract theory, principal-agent model, informativeness principle

JEL Classification: D86, J33

Suggested Citation

Chaigneau, Pierre and Edmans, Alex and Gottlieb, Daniel, The Informativeness Principle Without the First-Order Approach (August 15, 2018). Games and Economic Behavior, Forthcoming, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 444/2014, Available at SSRN: https://ssrn.com/abstract=2526526 or http://dx.doi.org/10.2139/ssrn.2526526

Pierre Chaigneau

Queen's University ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Alex Edmans (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Daniel Gottlieb

London School of Economics ( email )

New Academic Building 5.30
Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://https://personal.lse.ac.uk/gottlied/

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