Contemporary Issues and Ideas in Social Sciences, Vol 5, No 1 (2009)

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Hidden Action Principal-Agent Problems with Endogenous Signal Precision

Priyodorshi Banerjee

Abstract


We study costly augmentation of signal accuracy by the principal in a binary model, with two-dimensional signal quality. Irrespective of cost, the outcomes when the principal can pre-commit to precision levels differ significantly from those when she cannot.

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