Abstract
AbstractThis paper incorporates ambiguity into a principal–agent framework wherein an owner delegates the investment decision of a project in continuous time to a manager. Information is asymmetric in that the owner faces ambiguity regarding the uncertain investment cost of the project (low or high) but the manager privately observes the true value. Ambiguity aversion is shown to induce the owner to act in a pessimistic manner with a perception that the probability of having the low investment cost is smaller than what the objective beliefs suggest, resulting in a distortion on the equilibrium tradeoff between investment efficiency and information rent.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
