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Elsevier, International Journal of Industrial Organization, 1(26), p. 206-212

DOI: 10.1016/j.ijindorg.2006.11.002

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Gathering information before signing a contract: A screening perspective

Journal article published in 2008 by Olivier Compte, Philippe Jehiel
This paper was not found in any repository, but could be made available legally by the author.
This paper was not found in any repository, but could be made available legally by the author.

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Abstract

A principal has to choose among several agents to fulfill a task and then provide the right incentives to perform it. Agents do not a priori know how competent they are for the task. It is shown that the principal should propose a contract that leads the agents to gather information about their competence prior to signing the contract. This insight is in sharp contrast with Crémer and Khalil [J. Crémer, F. Khalil: "Gathering information before signing a contract", American Economic Review, 82, 1992, 566-578] who consider a setup with one agent (or alternatively a setup with several agents in which the private information commonly applies to all agents). It emerges because, in our private value setup, information acquisition accompanied by a proper screening device increases the chance that the principal will pick a competent agent.