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The Virtue of Being Underestimated: A Note on Discriminatory Contracts in Hidden Information Models

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  • Wendelin Schnedler

Abstract

A standard hidden information model is considered to study the influence of the a priori productivity distribution on the optimal contract. A priori more productive (hazard rate dominant) agents work less, enjoy lower rents, but generate a higher expected surplus.

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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse18_2001.pdf
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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse18_2001.

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Length: 8
Date of creation: Jun 2001
Date of revision:
Handle: RePEc:bon:bonedp:bgse18_2001

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

Related research

Keywords: adverse selection; statistical discrimination; stochastic order relation;

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References

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  1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  2. Nahum D. Melumad & Dilip Mookherjee & Stefan Reichelstein, 1995. "Hierarchical Decentralization of Incentive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 654-672, Winter.
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Cited by:
  1. Wendelin Schnedler, 2009. "You Don't Always Get What You Pay For: Bonuses, Perceived Income, and Effort," The Centre for Market and Public Organisation 09/226, Department of Economics, University of Bristol, UK.

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