Spyros Terovitis: Motivating Information Acquisition Under Delegation

Job talk. Spyros Terovitis is PhD candidate at the University of Warwick. He will present "Motivating Information Acquisition Under Delegation".

Spyros Terovitis. Photo: Personal webpage

Abstract:

We study a model in which a principal delegates a choice between different actions to an agent. The return from each action is unknown but the agent can invest in acquiring (noisy) information before making his choice. The principal would like the agent to invest in information but this investment is unobservable and only the chosen action and its resulting payoff is contractible. We solve for the optimal contract and show that it induces a contrarian bias. As the main application, we explore a setting where an analyst in a brokerage house issues financial recommendations, and argue that our findings are supported by empirical evidence on the behaviour of financial analysts.

 

Read the full paper here (.pdf)

Published Jan. 16, 2017 11:02 AM - Last modified Jan. 31, 2017 8:26 AM