Information alliance in common agency

Abstract We study an agency model with two independent projects each of which is owned by a principal. Under exclusive agency, each principal uses a different agent, whereas under common agency, all principals use the same agent. A project’s outcome depends on the agent’s hidden effort. We show that, even in the absence of physical linkages between the projects, a principal benefits from providing information on her project outcome to the other principal under common agency (rather than benefiting from receiving the information ), whereas no such benefits arise under exclusive agency. That is, under common agency, an information sharing principal can take advantage of the other principal’s using the shared information. As a result, sharing information becomes each principal’s dominant strategy, provided that the other principal uses the shared information in a Pareto-optimal way. We show that using a common agent is optimal when information can be shared.