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We study the relationship between the precision of information about the performance of an agent in a market, and the incentives this agent has for exerting effort to produce high quality. We show that this relationship can be nonmonotonic. There exists an efficient plausible equilibrium that induces a threshold beyond which any further improvement in the precision of information weakens the agent's incentive to produce high quality. Accordingly, both very accurate and very inaccurate signals about the agent's performance may destroy its incentive to exert effort. A few applications of this result are discussed. Copyright 2010 The Authors. The Journal of Industrial Economics 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.

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  • Omer Moav & Zvika Neeman, 2010. "THE QUALITY OF INFORMATION AND INCENTIVES FOR EFFORT -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 642-660, September.
  • Handle: RePEc:bla:jindec:v:58:y:2010:i:3:p:642-660

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    References listed on IDEAS

    1. Simona Fabrizi & Steffen Lippert & Pehr-Johan Norbäck & Lars Persson, 2013. "Venture Capitalists and the Patenting of Innovations," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 623-659, September.
    2. Fabrizi, Simona & Lippert, Steffen & Norback, Pehr-Johan & Persson, Lars, 2007. "Venture Capitalists, Asymmetric Information and Ownership in the Innovation Process," MPRA Paper 6265, University Library of Munich, Germany.
    3. Andrew F. Daughety & Jennifer F. Reinganum, 2013. "Search, bargaining, and signalling in the market for legal services," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 82-103, March.
    4. Bernhard Ganglmair & Luke M. Froeb & Gregory J. Werden, 2012. "Patent Hold-Up and Antitrust: How A Well-Intentioned Rule Could Retard Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 249-273, June.
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    Cited by:

    1. Francisco Alvarez-Cuadrado & Jose Maria Casado & Jose Maria Labeaga, 2016. "Envy and Habits: Panel Data Estimates of Interdependent Preferences," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(4), pages 443-469, August.
    2. repec:eee:intfin:v:50:y:2017:i:c:p:13-35 is not listed on IDEAS
    3. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2017. "Do creditor rights and information sharing affect the performance of foreign banks?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 13-35.

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