Journal of Political Economy. December
2016, Vol. 124, Issue 6, Pages 1515-1562
A firm considers hiring an agent who may be competent for a potential project or not. The agent can prove her competence but faces a holdup problem. We propose a model of persuasion and show how gradualism helps mitigate the holdup problem. We show when it is optimal to give away part of the information at the beginning of the bargaining and sell the remainder in dribs and drabs. The agent can appropriate only part of the value of information. Introducing a third party allows her to extract the maximum surplus.