The quality of information and incentives for effort

Omer Moav, Zvika Neeman

Research output: Contribution to journalArticlepeer-review

Abstract

We study the relationship between the precision of information about the performance of an agent in a market, and the incentives this agent has for exerting effort to produce high quality. We show that this relationship can be nonmonotonic. There exists an efficient plausible equilibrium that induces a threshold beyond which any further improvement in the precision of information weakens the agent's incentive to produce high quality. Accordingly, both very accurate and very inaccurate signals about the agent's performance may destroy its incentive to exert effort. A few applications of this result are discussed.

Original languageEnglish
Pages (from-to)642-660
Number of pages19
JournalJournal of Industrial Economics
Volume58
Issue number3
DOIs
StatePublished - Sep 2010

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