Endogenizing Private Information: Incentive Contracts under Learning By Doing
This paper investigates the design of incentives in a dynamic adverse selection framework when agents’ production technologies display learning effects and agents’ rate of learning is private knowledge. In a simple two-period model with full commitment available to the principal, we show that whether learning effects are over- or under-exploited crucially depends on whether learning effects increase or decrease the principal’s uncertainty about agents’ costs of production. Hence, what drives the over- or under-exploitation of learning effects is whether more efficient agents also learn faster (so costs diverge through learning effects) or whether it is the less efficient agents who learn faster (so costs converge). Furthermore, we show that if divergence in costs through learning effects is strong enough, learning effects will not be exploited at all, in a sense to be made precise.
|Date of creation:||Sep 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +41-1-634 21 37
Fax: +41-1-634 49 82
Web page: http://www.soi.uzh.ch/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:soz:wpaper:0413. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser)
If references are entirely missing, you can add them using this form.