Delegated Search: Procedure Matters

Peter Postl

No 04-17, Discussion Papers from Department of Economics, University of Birmingham

Abstract: This paper studies incentive contracts for information acquisition. In the situations considered, a principal must choose between two alternatives with unknown payoffs. There is an agent who can find them out at a fixed cost per alternative. His effort and any information acquired are unobservable. The principal observes only the payoff associated with her chosen alternative, and hence the agent has the incentive to overstate total cost by strategically finding out only one of the two payoffs and lying about the other. I identify a condition under which the first best is attainable. If this condition is not satisfied, there may be an efficiency loss from agency despite full surplus extraction.

Keywords: Contracts; Optimal Search; Information Acquisition (search for similar items in EconPapers)
JEL-codes: C70 C72 D80 D82 D83 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2004-07
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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:04-17

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