NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Generalized Informativeness Principle

Pierre Chaigneau, Alex Edmans, Daniel Gottlieb

NBER Working Paper No. 20729
Issued in December 2014
NBER Program(s):Corporate Finance Program, Law and Economics Program, Labor Studies Program

This paper shows that the informativeness principle, as originally formulated by Holmstrom (1979), does not hold if the first-order approach is invalid. We introduce a "generalized informativeness principle" that takes into account non-local incentive constraints and holds generically, even without the first-order approach. Our result holds for both separable and non-separable utility functions.

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Document Object Identifier (DOI): 10.3386/w20729

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