Abstract
AbstractThis paper examines the optimal investment timing in a principal–agent model under asymmetric information. An owner has to delegate the investment decision of a project to a manager who privately knows the true quality of the project. Introducing regret aversion to the owner affects the equilibrium trade‐off between investment efficiency and information rent as compared to the standard model. When the project is more likely to be of high (low) quality, social loss is smaller (larger), the informed manager is made better (worse) off, and the uninformed owner is always made worse off when regret aversion prevails.
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