Hidden Talents: Entrepreneurship and Pareto-Improving Private Information
Abstract"Two entrepreneurs, each privately informed about her own talent, simultaneously and noncooperatively choose their efforts in producing a new product. Product quality depends on both entrepreneurs' talents and efforts, but is unobservable by potential buyers prior to purchase; however, buyers can observe the entrepreneurs' individual efforts. Because the entrepreneurs share the payoff, each is tempted to shirk. However, the need to signal quality to potential buyers serves as a credible commitment to provide greater effort. Thus, the "problem" of adverse selection mitigates the problem of moral hazard, so that a new venture can perform better than the corresponding mature market." Copyright (c) 2009, The Author(s) Journal Compilation (c) 2009 Wiley Periodicals, Inc..
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 18 (2009)
Issue (Month): 3 (09)
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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
Other versions of this item:
- Andrew F. Daughety & Jennifer F. Reinganum, 2007. "Hidden Talents: Entrepreneurship and Pareto-Improving Private Information," NBER Chapters, in: Entrepreneurship: Strategy and Structure National Bureau of Economic Research, Inc.
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