Information Disclosure in Mitigating Moral Hazard : An Experimental Investigation

In a moral hazard framework, an agent considers undertaking a task of uncertain difficulty. An immediate disclosure of the task’s difficulty by the principal convinces the agent to perform only easy tasks. By contrast, information design theory predicts that delayed disclosure can induce the agent to continue working even when the work turns out to be challenging. Our experimental evidence confirms that delayed disclosure outperforms immediate disclosure, as theory predicts, but only when the principal can choose between either of the disclosure policies and not to disclose at all. However, when the principal is faced with the choice between the two policies and chooses delayed disclosure over immediate disclosure, the superiority of delayed disclosure disappears due to the agent’s intention-based reciprocity towards the principal