The price of advice

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 1416

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Market Structure and Pricing: Other ; Asymmetric and Private Information; Mechanism Design ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: Mechanism design ; information disclosure ; consulting ; advising ; Sachverständige ; Signalling ; Asymmetrische Information ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Eső, Péter ; Szentes, Balázs
• Event: Veröffentlichung
• (who): Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science
• (where): Evanston, IL
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/31199
• Last update: 10.03.2025, 11:43 AM CET