Overstatement and Rational Market Expectation
Posted: 1 Feb 2010
Date Written: 2009
When an agent overstates his/her true performance, a rational market can still correctly guess the true performance. This paper shows, however, that such rational market expectation and a profit-maximizing principal can exacerbate the lack of productive effort by the agent.
Keywords: Overstatement, Rational expectation, Moral hazard
JEL Classification: L2, D8, J3
Suggested Citation: Suggested Citation