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Incentives Schemes as a Signaling Device

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Listed author(s):
  • Inderst, Roman

    ()

    (Sonderforschungsbereich 504)

Abstract

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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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 98-36.

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Length: 26 pages
Date of creation: 03 Nov 1998
Handle: RePEc:xrs:sfbmaa:98-36
Note: Financial Support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged. I thank seminar participants at Free University, Berlin and Humboldt University, Berlin (Workshop on Corporate Governance) for helpful comments
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  1. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-1819, November.
  2. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
  3. Curtis R. Taylor, 1999. "Time-on-the-Market as a Sign of Quality," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 555-578.
  4. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
  5. Beaudry, Paul & Poitevin, Michel, 1993. "Signalling and Renegotiation in Contractual Relationships," Econometrica, Econometric Society, vol. 61(4), pages 745-782, July.
  6. Nancy A. Lutz, 1989. "Warranties as Signals under Consumer Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 239-255, Summer.
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Cited by:

  1. Martimort, D. & Poudou, J.-C. & Sand-Zantman, W., 2006. "Contracting for an Innovation under Bilateral Asymmetric Information," Cahiers du LASER (LASER Working Papers) 2006.19, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
  2. Chade, Hector & Silvers, Randy, 2002. "Informed principal, moral hazard, and the value of a more informative technology," Economics Letters, Elsevier, vol. 74(3), pages 291-300, February.
  3. Wagner, Christoph & Mylovanov, Tymofiy & Tröger, Thomas, 2015. "Informed-principal problem with moral hazard, risk neutrality, and no limited liability," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 280-289.
  4. Silvers, Randy, 2012. "The value of information in a principal–agent model with moral hazard: The ex post contracting case," Games and Economic Behavior, Elsevier, vol. 74(1), pages 352-365.
  5. Ishiguro, Shingo, 2003. "Comparing allocations under asymmetric information: Coase Theorem revisited," Economics Letters, Elsevier, vol. 80(1), pages 67-71, July.
  6. Nicholas Charles Bedard, 2017. "Contracts in informed-principal problems with moral hazard," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(1), pages 21-34, April.

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