The expected value of information in a standard portfolio investment problem with ex-post payment can increase when the information is garbled prior to its sale. Distorting the information helps to resolve the incentive problem decreasing the buyer's default risk and thereby increasing the seller's expected revenues.
Bibliographical noteFunding Information:
This research was in part supported by the Risk Management and Decision Processes Center at the Wharton School of the University of Pennsylvania and by a David Morgenthaler II Faculty Scholar Award at Stanford University. We would like to thank Rachel Croson, Richard Kihlstrom, Paul Kleindorfer, an anonymous referee, and participants of the 2002 Conference on Economic Design in New York City and the 2003 Spring Meeting of Young Economists in Leuven (Belgium) for helpful suggestions.
- Limited liability
- Portfolio investment
- Value of information