INFORMATION CONTROL IN THE PRINCIPAL-AGENT PROBLEM

This paper compares the principal's payoff in agency model under diffe rent assumptions about the agent's access to information. The agent ma y make decisions before (is uninformed) or after (is informed) learnin g the state of nature. When there are two possible outcomes, the princ ipal typically prefers informed to uninformed agents, whether the agen t receives the information before or after contracting. This result is false when there are more than two outcomes. Conditions under which a principal prefers one agent to another, when the agents differ only i n their disutility of effort, are also given.