Template-Type: ReDIF-Paper 1.0
Title: Optimal Contracting with Verifiable Ex Post Signals
Author-Name: Anke Kessler
Author-Name: Christoph Lülfesmann
Author-Name: Patrick Schmitz
Classification-JEL: D82
Keywords: Adverse Selection; Ex Post Information; Wealth Constraints; Upward Distortion
Abstract: We study an adverse selection problem in which information that is imperfectly correlated with the agent's type becomes public ex post. Unbounded penalties
	are ruled out by assuming that the agent is wealth constrained. The following conclusions emerge. If the agent's utility is increasing in the contractual action (e.g. the
	quantity traded), the downward distortion in bad states may be strengthened. Hence, ex post information can reduce efficiency. In contrast, if the agent's utility is
	decreasing in the action level, there may be an upward distortion. Moreover, his rent may increase due to the ex post signal about his type. The qualitative results thus
	differ substantially depending on the specific situation under consideration, e.g., whether the agent is in a `buyer' or `seller' position. In both cases, however, additional
	information need not improve the efficiency of the relationship.
Note: 
Length: 21
Creation-Date: 2000-10
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse19_2000.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse19_2000