The Generalized Informativeness Principle

The Generalized Informativeness Principle

Pierre Chaigneau, Alex Edmans, Daniel Gottlieb

Series number :

Serial Number: 
444/2014

Date posted :

December 01 2014

Last revised :

December 20 2014
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Keywords

  • contract theory • 
  • principal-agent model • 
  • Informativeness principle

This paper shows that the informativeness principle, as originally formulated by Holmstrom (1979), does not hold if the first-order approach is invalid. We introduce a ?generalized informativeness principle? that takes into account non-local incentive constraints and holds generically, even without the first-order approach.

Our result holds for both separable and non-separable utility functions.

Authors

Real name: 
Pierre Chaigneau
Real name: 
Daniel Gottlieb