private information with negative value Retum to the example in Table 21.4. First suppose no infonnation is available, eitherpublicly or privately. Determine and interpret an optimal pay-for-perfonnanee arrangement. (Assume the manager can post a large perfonnanee bond.) Second, suppose the good or bad environment is privately revealed to the agent before the agent acts; this revelation cannot be communieated to the owner. Detennine and interpret an optimal pay-for-perfonnance arrangement. How mueh would the owner pay to keep the manager from observing this information? Does the manager benefit from having the private information? Why?

AppendixLO1