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Title:The price of advice PDF Logo
Authors:Eső, Péter
Szentes, Balázs
Issue Date:2004
Series/Report no.:Discussion paper // Center for Mathematical Studies in Economics and Management Science 1416
Abstract:We develop a model of consulting (advising) where the role of the consultant is that she can reveal signals to her client which refine the client’s original private estimate of the profitability of a project. Importantly, only the client can observe or evaluate these signals, the consultant cannot. We characterize the optimal contract between the consultant and her client. It is a menu consisting of pairs of transfers specifying payments between the two parties (from the client to the consultant or vice versa) in case the project is undertaken by the client and in case it is not. The main result of the paper is that in the optimal mechanism, the consultant obtains the same profit as if she could evaluate the impact of the signals (whose release she controls) on the client’s profit estimate.
Subjects:Mechanism design
information disclosure
consulting
advising
JEL:C72
D49
D82
D83
Document Type:Working Paper
Appears in Collections:Discussion Papers, Kellogg School of Management, Northwestern University

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