Patrick W. Schmitz
Economics Letters, Vol. 101 (3), 2008, 268-271.
Abstract. In a complete contracting model, a risk-neutral seller exerts effort while producing a good. Effort is a hidden action and stochastically influences the risk-neutral buyerÂ´s valuation. Then the buyer can gather private information about his valuation. The ex ante optimal contract may encourage information gathering, even though it is commonly known that it is ex post efficient to trade regardless of the buyerÂ´s valuation (so that information gathering is a strategic, unproductive rent-seeking activity). Information gathering occurs even more often if it is a verifiable action.
The working paper version is available for download (CEPR Discussion Paper 6988).
The paper is available for download.