We study a model of adverse selection, hard and soft information, and mentalizing ability—the human capacity to represent others’ intentions, knowledge, and beliefs. By allowing for a continuous range of different information types, as well as for different means of acquiring information, we develop a model that captures how principals differentially obtain information on agents. We show that principals that combine conventional data collection techniques with mentalizing benefit from a synergistic effect that impacts both the amount of information that is accessed and the overall cost of that information. This strategy affects the properties of the optimal contract, which grows closer to the first best. This research provides insights into the implications of mentalizing for agency theory.

Optimal contracting under adverse selection: the implications of mentalizing

FOSS, NICOLAI J.
2015

Abstract

We study a model of adverse selection, hard and soft information, and mentalizing ability—the human capacity to represent others’ intentions, knowledge, and beliefs. By allowing for a continuous range of different information types, as well as for different means of acquiring information, we develop a model that captures how principals differentially obtain information on agents. We show that principals that combine conventional data collection techniques with mentalizing benefit from a synergistic effect that impacts both the amount of information that is accessed and the overall cost of that information. This strategy affects the properties of the optimal contract, which grows closer to the first best. This research provides insights into the implications of mentalizing for agency theory.
2015
2015
Lenells, Jonatan; Stea, Diego; Foss, NICOLAI J.
File in questo prodotto:
File Dimensione Formato  
Foss_Lenells_Stea_Contemporary_economics_2015.pdf

non disponibili

Tipologia: Pdf editoriale (Publisher's layout)
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 1.27 MB
Formato Adobe PDF
1.27 MB Adobe PDF   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3994218
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 3
  • ???jsp.display-item.citation.isi??? 3
social impact