Gathering Information before signing a contract: A screening perspective

Journal article: A principal has to choose among several agents to fulfill a task and then provide the right incentives to perform it. Agents do not a priori know how competent they are for the task. It is shown that the principal should propose a contract that leads the agents to gather information about their competence prior to signing the contract. This insight is in sharp contrast with Crémer and Khalil [J. Crémer, F. Khalil: "Gathering information before signing a contract", American Economic Review, 82, 1992, 566-578] who consider a setup with one agent (or alternatively a setup with several agents in which the private information commonly applies to all agents). It emerges because, in our private value setup, information acquisition accompanied by a proper screening device increases the chance that the principal will pick a competent agent.

Author(s)

Olivier Compte, Philippe Jehiel

Journal
  • International Journal of Industrial Organization
Date of publication
  • 2008
Keywords JEL
C72 D21
Keywords
  • Information acquisition
  • Screening
  • Principal-agent
Pages
  • 206-212
Version
  • 1
Volume
  • 26