Incentive-Compatible Contracts for the Sale of Information: Table 1

Bruno Biais; Laurent Germain

doi:10.1093/rfs/15.4.987

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Incentive-Compatible Contracts for the Sale of Information: Table 1

Bruno Biais¹; Laurent Germain²

¹ Toulouse University (IDEI-CRG-GREMAQ and IUF) · ² TBS Education

Review of Financial Studies 2002

An informed financial institution can trade on private information and also sell it to clients through a managed fund. To provide an incentive for the informed agent to trade in the interest of her client, the optimal contract requires that she be compensated as an increasing function of the profits of the fund. The optimal contract is also designed to limit the aggressiveness of the sum of the fund’s trade and the proprietary trade. This reduces information revelation and thus leads to greater overall trading profits than if the informed agent only conducted proprietary trades.

DOI: 10.1093/rfs/15.4.987
Volume: 15 (4)
Pages: 987-1003
Language: en
Export: BibTeX
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