Gathering information before signing a contract with a privately informed principal

We show that precontractual gathering of information by the uninformed part y in a transaction benefits the favorable types of the informed party by al lowing them to separate from the unfavorable types. Complete separation of types can only occur if the informed party is able to revise her initial co ntract offer when the uninformed party detects an unfavorable type. Paradox ically, the uninformed party would benefit if the informed party was constr ained to make a take-it-or-leave-it offer. (C) 2000 Elsevier Science B.V. A ll rights reserved.