Delegation and information disclosure with unforeseen contingencies

Haoran Lei, Xiaojian Zhao

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1 Citation (Scopus)

Abstract

We incorporate unawareness into the delegation problem between a financial expert and an investor, and study their pre-delegation communication. The expert has superior awareness of the possible states of the world, and decides whether to reveal some of them to the investor. We find that the expert reveals all the possible states to the investor if the investor is initially aware of a large set of possible states, but reveals partially or nothing otherwise. An investor with a higher degree of unawareness tends to delegate a larger set of projects to the expert, giving rise to a higher incentive for the expert to keep her unaware.

Original languageEnglish
Number of pages20
JournalB.E. Journal of Theoretical Economics
Volume21
Issue number2
DOIs
Publication statusPublished - 2021

Keywords

  • delegation
  • financial advice
  • unawareness
  • unforeseen contingencies

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