The Informativeness Principle Without the First-Order Approach

The Informativeness Principle Without the First-Order Approach

Pierre Chaigneau, Alex Edmans, Daniel Gottlieb

Series number :

Serial Number: 
444/2014

Date posted :

December 01 2014

Last revised :

August 29 2018
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Keywords

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

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.

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Published in

Published in: 
Publication Title: 
Games and Economic Behavior (Forthcoming)

Authors

Real name:
Pierre Chaigneau
Real name:
Daniel Gottlieb