Information Aggregation via Contracting

When a group of investors with dispersed private information jointly invest in risky project, how should they divide the project's profit? We show that simple contract dividing profits proportion to investors' risk tolerances may facilitate aggregation by altering risk-taking incentives when decide on investment strategies respond information. Our results provide contracting-based approach for aggregation, which is an alternative learning from endogenous market variables (e.g., prices) via contingent schedules as seen well-known rational expectations equilibrium models.