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Incentive schemes as a signaling device

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  • Inderst, Roman

Abstract

This paper considers a model of moral hazard with the additoinal feature that the principal has private information. For instance, in an organizational setting the firm may be better informed about the profitability of a sales area for which it seeks to employ a new sales representative. We show how this information asymmetry may lead to a game of signaling with low-powered equilibrium incentives.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 44 (2001)
Issue (Month): 4 (April)
Pages: 455-465

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Handle: RePEc:eee:jeborg:v:44:y:2001:i:4:p:455-465

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  1. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, Econometric Society, vol. 51(6), pages 1799-819, November.
  2. Taylor, Curtis R, 1999. "Time-on-the-Market as a Sign of Quality," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(3), pages 555-78, July.
  3. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, Elsevier, vol. 60(2), pages 241-276, August.
  4. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, Econometric Society, vol. 60(1), pages 1-42, January.
  5. Nancy A. Lutz, 1989. "Warranties as Signals under Consumer Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 239-255, Summer.
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Cited by:
  1. Randy Silvers, 2006. "The Value of Information in an Agency Model with Moral Hazard," Economics Series 2006_22, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  2. Hector Chade & Randolph Silvers, . "Informed Principal, Moral Hazard, and the Value of a More Informative Technology," Working Papers, Department of Economics, W. P. Carey School of Business, Arizona State University 2133302, Department of Economics, W. P. Carey School of Business, Arizona State University.
  3. Martimort, David & Poudou, Jean-Christophe & Sand-Zantman, Wilfried, 2009. "Contracting for an Innovation under Bilateral Asymmetric Information," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 448, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Silvers, Randy, 2012. "The value of information in a principal–agent model with moral hazard: The ex post contracting case," Games and Economic Behavior, Elsevier, vol. 74(1), pages 352-365.
  5. Ishiguro, Shingo, 2003. "Comparing allocations under asymmetric information: Coase Theorem revisited," Economics Letters, Elsevier, vol. 80(1), pages 67-71, July.
  6. Randy Silvers, 2006. "The Value of Information in a Principal-Agent Model with Moral Hazard: The Ex Ante Contracting Case," Economics Series 2006_23, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.

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