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Adverse Selection in an Efficiency Wage Model with Heterogeneous Agents

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  • Ricardo Azevedo Araujo

    (University of Brasilia (UnB), Brazil)

  • Adolfo Sachsida

    (Brazilian Institute for Applied Economic Research (IPEA) and IBMEC-DF, Brazil)

Abstract

This paper studies efficiency wages in the presence of heterogeneous workers and asymmetric information. It includes an incentive compatibility constraint (ICC) in the efficiency wage model with heterogeneous workers to show that the implementation of efficiency wages in the presence of heterogeneity faces the problem of adverse selection. Employees with a smaller effort aversion supply a smaller level of effort than what is optimal under perfect information due to hidden information. In this vein only a second best solution is obtained.

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File URL: http://www.anpec.org.br/revista/vol11/vol11n3p495_503.pdf
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Bibliographic Info

Article provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its journal Economia.

Volume (Year): 11 (2010)
Issue (Month): 3 ()
Pages: 495_503

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Handle: RePEc:anp:econom:v:11:y:2010:i:3:495_503

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Related research

Keywords: Efficiency Wages; Adverse Selection; Asymmetric Information;

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