Incentives 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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|Date of creation:||03 Nov 1998|
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|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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- Bengt Holmstrom & Roger B. Myerson, 1981.
"Efficient and Durable Decision Rules with Incomplete Information,"
495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November.
- Taylor, Curtis R, 1999. "Time-on-the-Market as a Sign of Quality," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 555-78, July.
- 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.
- Beaudry, Paul & Poitevin, Michel, 1993. "Signalling and Renegotiation in Contractual Relationships," Econometrica, Econometric Society, vol. 61(4), pages 745-82, July.
- 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.
- 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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