Investment and Information Value for a Risk Averse Firm

Posted: 6 Dec 2000

See all articles by Susan Athey

Susan Athey

Stanford Graduate School of Business

Date Written: November 2000

Abstract

This paper analyzes the problem faced by a risk-averse firm considering how much to invest in a risky project. The firm receives a signal about the value of the project. We derive necessary and sufficient conditions on the signal distribution such that (i) the agent's investment is nondecreasing in the realization of the signal and (ii) different signals can be ranked according to their ex ante information value. Finally, we provide conditions under which it is possible to compare the incentive to acquire information across agents with different risk preferences, and we identify a class of utility functions for which agents who are less risk averse purchase more information.

Keywords: Portfolio problem, value of information, stochastic orderings, comparative statics, under uncertainty, monotone likelihood ratio order, monotone probability ratio order

JEL Classification: C44, C60, D81

Suggested Citation

Carleton Athey, Susan, Investment and Information Value for a Risk Averse Firm (November 2000). Available at SSRN: https://ssrn.com/abstract=248616

Susan Carleton Athey (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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