The Economics of Clear Advice and Extreme Options
I study a principal-agent model in which the agent collects information and then chooses a verifiable action. I show that the principal can find it desirable to constrain the agent's action set even though there is no disagreement about the ranking of actions "ex post". The elimination or penalization of "intermediate" actions, which are optimal when information is poor, improves incentives for information collection. I characterize optimal action sets when the agent is infinitely risk averse with respect to income shocks and optimal incentive schemes when the agent is risk neutral. Copyright The Review of Economic Studies Limited, 2005.
Year of publication: |
2005
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Authors: | Szalay, Dezsö |
Published in: |
Review of Economic Studies. - Wiley Blackwell, ISSN 0034-6527. - Vol. 72.2005, 4, p. 1173-1198
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Publisher: |
Wiley Blackwell |
Saved in:
freely available
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