Hidden Talents: Entrepreneurship and Pareto-Improving Private Information
In: Entrepreneurship: Strategy and Structure
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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- Andrew F. Daughety & Jennifer F. Reinganum, 2009. "Hidden Talents: Entrepreneurship and Pareto-Improving Private Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 901-934, 09.
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