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11.04. Micro Theory Seminar: Nicola Persico

Micro Theory Seminar with Nicola Persico (Northwestern University)

Event details
When Apr 25, 2018
from 16:30 to 17:45
Contact Name Stephan Lauermann
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Communication between Shareholders



We study an expert shareholder who chooses how much information to communicate about a potential investment’s return to a controlling shareholder who controls the investment strategy. We embed this model into two settings. In the first setting, equity ownership is determined by investors buying shares on a competitive equity market. We provide conditions under which share-trading delivers perfect communication and full risk-sharing. However, an inefficiency lurks in the background: a competitive market for shares fails to reward the positive externality that the expert investor provides to other investors by purchasing shares. The second setting is a principal-agent relationship where the equity is granted as compensation by a principal (board) to an agent (CEO). Within this setting, the model highlights a novel trade-o¤ between incentivizing e¤ort provision and promoting information transmission.

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