The social value of hidden information in adverse selection economies

Keith John Crocker, Arthur Snow

Research output: Contribution to journalArticle

24 Scopus citations

Abstract

When agents possess imperfect hidden knowledge at the time contracts are negotiated, the social value of agents having access to additional hidden knowledge before contracts are implemented is positive to the extent that incentive-constrained agents are sorted more finely, but is negative to the extent that incentive-constraining agents impose more stringent signalling requirements on others. Hence, the intuition developed by Hirshleifer (1971), Marshall (1974), and Milgrom and Stokey (1982), that privately acquired information has neither positive nor negative social value when agents possess no prior hidden knowledge, does not apply when agents possess imperfect hidden knowledge during contractual negotiations.

Original languageEnglish (US)
Pages (from-to)317-347
Number of pages31
JournalJournal of Public Economics
Volume48
Issue number3
DOIs
StatePublished - Jan 1 1992

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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