Is No News Bad News ? Information Transmission and The Role of "Early Warning" in The Principal-Agent Model  

Oleh:

Levitt, Steven D. ; Snyder, Christopher M.

Jenis: Article from Bulletin/Magazine
Dalam koleksi: The Rand Journal of Economics vol. 28 no. 4 (1997), page 641-661.
Topik: INFORMATION; news; information transmission; early warning; principal - agent model

Ketersediaan

Perpustakaan Pusat (Semanggi) Nomor Panggil: RR10.1 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

The standard principal - agent model neglects the potentially important role of information transmission form agent to principal. We study optimal incentive contracts when the agent has a private signal of the likelihood of the project's success. We show that the principal can costlessly extract this signal if and only is this does not lead her to intervene in the project in any way that will influence its outcome. Intervention undermines incentives by weakening the link between the agent's initial effort and the project's outcome. If possible, the principal commits not to cancel some projects with negative expected payoffs. To elicit early warning, contracts must reward agents for coming forward with bad news.

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