THE VALUE OF IGNORANCE

This article provides a new perspective on the information structure o f art agent in a standard model of adverse selection. Before contracti ng takes place, the agent has the opportunity to gather (private) info rmation on a relevant parameter that affects final payoffs. I allow fo r the possibility that the agent remains uninformed with some probabil ity. The agent's optimal choice of information structure is derived, a nd it is shown that in the case of two states of nature, the possibili ty of remaining ignorant has a positive strategic value for the agent Since a poor information structure generates strategic benefits, there will be no equilibrium in which the agent is perfectly informed even if additional information is costless at the margin.