Timing of information in agency problems with hidden actions

Abstract

This paper endogenizes in a standard hidden action model the point in time when a risk neutral and wealth constrained agent and the principal observe the realization of an additional signal: before the agent’s effort choice (ex ante information) or after (ex post information). In a decision problem, ex ante information does (weakly) better than ex post information because the decision maker can tailor efforts to the information. We show that this is not the case for incentive problems: a negative incentive effect arises under ex ante information that prevails even though the principal tailors the agent’s effort to the information.