Information management in incentive problems
Abstract
We extend the standard procurement model to examine how an agent is optimally induced
to acquire valuable planning information before he chooses an unobservable level of
cost-reducing effort. Concerns about information acquisition cause important changes
in standard incentive contracts. Reward structures with extreme financial payoffs
arise, and super-high-powered contracts are coupled with contracts that entail pronounced
cost sharing. However, if the principal can assign the planning and production tasks
to two different agents, then all contracting distortions disappear and, except for
forgone economies of scope, the principal achieves her most preferred outcome.
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https://hdl.handle.net/10161/1982Collections
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Tracy R. Lewis
Walter M. Upchurch, Jr. Distinguished Professor of Business Administration
Tracy Lewis is Professor of Economics at the Fuqua School of Business at Duke University,
where he holds the Black Chair in Economics. Professor Lewis founded the Innovation
Center at the University. Prior to joining the Duke University Faculty in 2003, he
served on the faculties at the University of Florida, at the California Institute
of Technology, the University of British Columbia, and the University of California,
Davis. Aside from academic employment, he has also held positions at the Fed
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