Wage Profile and Monitoring under Adverse Selection
We consider wage profiles and monitoring under adverse selection and moral hazard, that is, extend the Lazear's shirking model to adverse selection. It is shown that workers with higher abilities are offered a steeper wage profile (high total payment) and frequent monitoring. As the self-selection theory shows, workers with high ability get information rent. If the rate of monitoring them were low, the low ability type would pretend to be the high ability type. Hence, to order the low ability type, high monitoring rate is offend to the high ability type.
|Date of creation:||Apr 1999|
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