Incentive schemes as a signaling device
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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- Holmstrom, Bengt & Myerson, Roger B, 1983.
"Efficient and Durable Decision Rules with Incomplete Information,"
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