Munich Personal RePEc Archive

Stealth Startups, Clauses, and Add-ons: A Model of Strategic Obfuscation

Monte, Daniel and Linhares, Luis Henrique (2023): Stealth Startups, Clauses, and Add-ons: A Model of Strategic Obfuscation.


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Obfuscation is ubiquitous and often intentional. We consider an uninformed Principal who chooses how costly it will be for the Agent to obtain and process new information. Thus, obfuscation and transparency are endogenous to the problem at hand. Using a rational inattention framework, we study the Principal's optimal induced cost of processing information and examine necessary and sufficient conditions for obfuscation. We characterize the Principal's optimal obfuscation for the class of state independent preferences. We apply our model to examples such as stealth startups, companies with unnecessarily complicated contracts, and firms whose products have varying features that disguise add-ons.

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