The informativeness principle without the first-order approach

Chaigneau, P, Edmans, A and Gottlieb, D (2019) The informativeness principle without the first-order approach. Games and Economic Behavior, 113. pp. 743-755. ISSN 0899-8256

Abstract

Holmström (1979) provides a condition for a signal to have positive value assuming the validity of the first-order approach. This paper extends Holmström’s analysis to settings where the first-order approach may not hold. We provide a new condition for a signal to have positive value that takes non-local incentive constraints into account and holds generically. Our condition is the weakest condition possible in the absence of restrictions on the utility function.