Econometric Society 57th European Meeting
25th August 2002 - 28th August 2002, Venice, Italy

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GETTING TO KNOW YOUR AGENT: INTERIM INFORMATION IN LONG TERMCONTRACTUAL RELATIONSHIPS


Category: Economic Theory
Principal-Agent Models
Monday 26th August 2002, 14:30 - 16:00, Room: 1.4
Session Chair(s): David Pérez-Castrillo, Universitat Autonoma de Barcelona, SPAIN

Presenter(s): Strausz, Roland

Co-Author(s): none

Keyword(s): monitoring, repeated adverse selection, verifiability

JEL(s): D82

Abstract:

In a finitely repeated principal agent relationship with adverse selection I study (exogenous) interim information that is revealed during a long term relationship. Interim information mitigates adverse selection. Verifiability, measured by the cost of signal manipulation, and the signal's informativeness determine the use and effectiveness of interim information: Less precise and more manipulable signals are used in a forward looking way exclusively. More precise and less manipulable signals are also used in a backward looking way and extract all information rents. Highly precise signals with a high degree of verifiability yield the first best. Moreover, verifiability and informativeness are substitutes.


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Paper Reference Number: 112

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Econometric Society
57th European Meeting
25th August 2002 - 28th August 2002, Venice, Italy

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