Centre for Development Economics
Department of Economics
Delhi School of Economics
ANNOUNCE A SEMINAR
Innovation and Crisis
by
Kaushalendra Kishore
(CAFRAL)
(Friday, August 2, 2024, at 3:30 PM IST )
Venue: Amex Room
Abstract:-
Why are innovations, both technological and financial, often followed by a crisis? This paper builds a principal-agent model in which the principal wants to invest in one of two projects – a new project (with a new technology) or an old project. The principal asks an agent to acquire costly information about the new project while also choosing the information structure (flexible information acquisition); and then choose between the new and old project based on his information. In equilibrium, the agent is offered an option contract and there is no information acquisition about the left tail of the distribution. This contrasts with the first best outcome in which information about the left tail is also acquired. The article explains why banks or traders appear to be optimistic before a crisis.