Information structure Clausole campione

Information structure. The contract between G and F is signed and the investment I is made ex ante i.e., when the unit variable cost 8 is still unknown to either contractual party. However, at the contracting stage, it is commonly known that 8 will be either low (8l > 0) or high (8h > 8l) with probabilities v and (1 — v) , respectively. After the investment is made and before production takes place, F observes privately the realized state of nature i.e., whether the marginal cost is 8l or 8h. Hence, F enjoys an information advantage vis−à−vis the contractual partner, as it is typically the case in delegation settings. The degree of uncertainty that G faces about operating costs is denoted ∆8 = 8h — 8l.