We study the interaction between productive investment and persuasion activities in a principal–agent setting with strategic disclosure. In an attempt to persuade the principal, the agent diverts substantial resources from productive activities to information acquisition for persuasion, even though productive activities are more efficient and raise the chances of success in persuasion. The equilibrium outcomes of simultaneous and sequential allocation procedures are the same, because the value of learning and experimentation through information acquisition is dominated by the value of productive investment. We show that an increase in cost of an investment project leads to a lower productive investment.
Migrow, Dimitri, and Sergei Severinov.
"Investment and Information Acquisition."
American Economic Journal: Microeconomics,
Firm Behavior: Theory
Asymmetric and Private Information; Mechanism Design
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Economics of Contract: Theory
Capital Budgeting; Fixed Investment and Inventory Studies; Capacity