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The informativeness principle without the first-order approach

Journal

Games and Economic Behavior

Subject

Finance

Publishing details

Games and Economic Behavior 2019 January Vol 113 p 743-755

Authors / Editors

Chaigneau P;Edmans A;Gottlieb D

Biographies

Alex Edmans

Publication Year

2019

Abstract

Holmström (1979) provides a condition for a signal to have positive value assuming the validity of the first-order approach. This paper extends Holmström’s analysis to settings where the first-order approach may not hold. We provide a new condition for a signal to have positive value that takes non-local incentive constraints into account and holds generically. Our condition is the weakest condition possible in the absence of restrictions on the utility function.

Keywords

Contract theory; Principal-agent model; Informativeness principle

Available on ECCH

No


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