Abstract
One agent, the buyer, takes an observable action that determines his own utility of later consumption. If the investment decision is unobservable and the seller makes repeated offers, then as the time between offers becomes arbitrarily small, the equilibrium investment decision of the buyer converges to the efficient level. In any setting in which efficient trade is guaranteed, unobservable investment implies that the buyer is the residual claimant on the investment and leads to the first best outcome. Agents often have superior information about both their ability and their wealth, it is important to determine the relationships among wealth, ability, economic opportunity, and financial performance persist in setting with more pronounced information asymmetries. It is important to understand how private knowledge of wealth affects the properties of a planner and an agent who has the skills.
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