Working Paper: CEPR ID: DP7331
Authors: Eva I. Hoppe; Patrick W. Schmitz
Abstract: We study the effect of additional private information in an agency model with an endogenous information structure. If more private information becomes available to the agent, this may hurt the agent, benefit the principal, and affect the total surplus ambiguously.
Keywords: Adverse Selection; Hidden Information; Information Gathering
JEL Codes: C72; D82; D86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Information acquisition costs (D83) | Expected rent of the agent (L85) |
| Information acquisition costs (D83) | Expected profit of the principal (G19) |
| Agent does not gather information before contract (D82) | Loss of expected rent for the agent (L85) |
| Agent learns disutility before production (D89) | Increase in principal's expected profit (G19) |
| Agent learns disutility before production (D89) | Decrease in agent's expected rent (R21) |
| Expected total surplus larger in scenario II when information gathering costs are low (D89) | Expected total surplus (D69) |
| Expected total surplus smaller for intermediate costs (D43) | Expected total surplus (D69) |
| Costless acquisition of information (D83) | Benefit to the principal (G14) |
| Information gathering costs increase (D89) | Expected rent of the agent decreases (R21) |