Screening of possibly incompetent agents

Nina Baranchuk and Philip Dybvig

Economics Letters, 2015, vol. 135, issue C, 15-18

Abstract: Accepting a contract with a high performance sensitivity is normally interpreted as a signal of high ability. However, a high self-assessment may be an incompetent forecast by an incompetent worker. In a model where optimistic agents have low ability, a low performance sensitivity screens out the incompetent agents. However, when agents are wealthy enough, the principal prefers to select the incompetent agent who covers the downside (as in a vanity press).

Keywords: Screening; Disagreement; Prior beliefs; Agency (search for similar items in EconPapers)
JEL-codes: G34 M51 M52 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:135:y:2015:i:c:p:15-18

DOI: 10.1016/j.econlet.2015.07.016

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