Author(s)

Takashi Shibata, Michi Nishihara

Graduate School of Economics, Osaka University, Osaka, Japan.
Graduate School of Social Sciences, Tokyo Metropolitan University, Tokyo, Japan.

This paper examines a manager’s investment timing in the presence of asymmetric information between an owner and the manager. In particular, we extend the asymmetric information problem by incorporating not only an incentive but also disincentive. Investment timing is delayed more under asymmetric information than under symmetric information. However, investment timing under asymmetric information converges to the symmetric information investment timing by making the disincentive (penalty) for the manager’s untruthful report sufficiently large. Consequently, by adopting an enlarged set of incentive-disincentive contracts framework, we showed that there is a relationship between the symmetric and asymmetric information problems.

Real Options; Asymmetric Information; Incentive-Disincentive; Principal-Agent Problem

T. Shibata and M. Nishihara, "Investment Timing with Incentive-Disincentive Contracts under Asymmetric Information," Technology and Investment, Vol. 3 No. 2, 2012, pp. 74-86. doi: 10.4236/ti.2012.32011.