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Strausz, Roland (January 2005): Optimal Information Revelation by Informed Investors. SFB/TR 15 Discussion Paper No. 34
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Abstract

This paper studies the structure of optimal finance contracts in an agency model of outside finance, when investors possess private information. We show that, depending on the intensity of the entrepreneur’s moral hazard problem, optimal contracts induce full, partial, or no revelation of the investor’s private information. A partial or nonrevelation of information is optimal, when it mitigates an undersupply of effort by the entrepreneur due to moral hazard.