Gathering information before signing a contract with a privately informed principal

Abstract We show that precontractual gathering of information by the uninformed party in a transaction benefits the favorable types of the informed party by allowing them to separate from the unfavorable types. Complete separation of types can only occur if the informed party is able to revise her initial contract offer when the uninformed party detects an unfavorable type. Paradoxically, the uninformed party would benefit if the informed party was constrained to make a take-it-or-leave-it offer.