Faculty of Economics and Business Administration Publications Database

Incentive Schemes as a Signaling Device

Volume: 44
Number: 4
Pages: 455 - 465
Month: April
ISSN-Print: 0167-2681
Link External Source: Online Version
Year: 2001
Keywords: Incentives; Signaling; Moral hazard; Adverse selection
Abstract: This paper considers a model of moral hazard where 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 which can mute incentives.