THE VALUE OF CORRELATED SIGNALS IN AGENCIES

We analyze optimal correlation levels in information technologies when multiple signals are available as contracting mechanisms within the p rincipal-agent paradigm. We identify sufficient conditions ensuring th at uniformly lower-correlation functions (in action levels) are prefer red, as well as (mutually disjoint) sufficient conditions for a higher -correlation function to be preferred. We also show that if correlatio n levels are invariant in the agent's action choice, the preference is for negative correlation, but not perfectly negative correlation. We generalize techniques originally used for proving Blackwell's theorem and show that our results extend to the decision context as well.