Essays in economics of information

The first essay, entitled “Remedial Collusion and Intra-Firm Bribery” explores a case where the principal can use the ex post bribery between agents for revelation of information. In our model a positive externality between the agents is generated, and this leads to an incentive problem with hidden information—an agent has an incentive to use his private information to free ride on the other agent. When the agents cannot collude, the principal creates a distortion in total output to reduce the information rent. However, under collusion, the principal reduces the information rent via bribery between the agents thus eliminating the distortion associated with the positive externality. We show that bribery between the agents occurs ex post with revelation of information, and that the prospect of collusion is beneficial.; The second essay, entitled “Partial Separation of Information Gathering and Implementation” studies a case in which the principal faces a task that requires “information gathering” for “implementation.” The question addressed in this paper is whether the principal separates the two tasks. We show that the optimal contract partially separates implementation from information gathering ex ante. That is, depending on the information gathering agent's report about operational condition, the principal may use the same agent (ex post integration) or use another agent (ex post separation) for implementation. The threat of ex post separation allows the principal to reduce rent given to agents.; The third essay, entitled “Endogenous Limited Liability in Intra-Firm Hierarchy” investigates the reason for existence of limited liabilities in corporations. In standard principal-agent framework, limited liabilities of agents have always been exogenous constraints. These constraints limit the principal's welfare. In this paper, we explore a typical intra-firm hierarchy where imposing limited liabilities are endogenously determined by the principal. In our model, we show that the principal becomes better off with the agents' limited liabilities and therefore chooses to impose them. By imposing limited liabilities, the principal is strategically giving a “veto” power to the agent at low-hierarchy, which in turn restricts the manipulation of information by the agent at middle-hierarchy.