Optimal information revelation by informed investors

Roland Strausz

This paper studies the structure of optimal finance contracts in an agency model of outside finance, when investors possess private information. We show that, depending on the intensity of the entrepreneur's moral hazard problem, optimal contracts induce full, partial, or no revelation of the investor's private information. A partial or nonrevelation of information is optimal, when it mitigates an undersupply of effort by the entrepreneur due to moral hazard.

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Year of publication:	2005
Authors:	Strausz, Roland
Publisher:	München : Sonderforschungsbereich/Transregio 15 Governance and the Efficiency of Economic Systems
Subject:	informed investors \| optimal finance contracts \| partial information revelation \| Asymmetrische Information \| Asymmetric information \| Informationsökonomik \| Economics of information \| Unvollkommene Information \| Incomplete information \| Anlageverhalten \| Behavioural finance \| Informationsverhalten \| Information behaviour \| Vertragstheorie \| Contract theory \| Prinzipal-Agent-Theorie \| Agency theory