Investment and information value for a risk averse firm

This paper analyzes the problem faced by a risk-averse firm considering how much to invest in a risky project. The firm receives a signal about the value of the project. We derive necessary and sufficient conditions on the signal distribution such that (i) the agent's investment is nondecreasing in the realization of the signal and (ii) different signals can be ranked according to their ex ante information value. Finally, we provide conditions under which it is possible to compare the incentive to acquire information across agents with different risk preferences, and we identify a class of utility functions for which agents who are less risk averse purchase more information.

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