The Quality of Information and Incentives for Effort

19 Pages Posted: 7 Sep 2010

See all articles by Omer Moav

Omer Moav

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR)

Zvika Neeman

Tel Aviv University - Eitan Berglas School of Economics; Boston University - Department of Economics

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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.

Suggested Citation

Moav, Omer and Neeman, Zvika, The Quality of Information and Incentives for Effort. The Journal of Industrial Economics, Vol. 58, Issue 3, pp. 642-660, September 2010. Available at SSRN: https://ssrn.com/abstract=1672921 or http://dx.doi.org/10.1111/j.1467-6451.2010.00428.x

Omer Moav (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www2.warwick.ac.uk/fac/soc/economics/staff/academic/moav

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Zvika Neeman

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

HOME PAGE: http://www.tau.ac.il/~zvika/

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-3184 (Phone)
617-353-4449 (Fax)

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