Contracts for Information Acquisition

Abstract

I study contracting for information acquisition under moral hazard. When the cost of information is average reduction in Shannon entropy all Pareto optimal contracts pay a fraction of output together with a state fixed effect and a decision fixed effect. The fraction of output is increasing in the set of experiments available to the agent. The state fixed effect indexes contract payments to state-wide differences in output. And the decision fixed effect punishes the agent for taking decisions in which liability limits are likely to bind. I apply my findings to optimal financial contracting. My results extend to incomplete and dynamic contracting environments.

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Cite this paper

@inproceedings{Clark2016ContractsFI, title={Contracts for Information Acquisition}, author={Aubrey A Clark and Benjamin M Hebert and Bengt Holmstr{\"{o}m and Ryota Iijima}, year={2016} }