THE QUALITY OF INFORMATION AND INCENTIVES FOR EFFORT* |
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| Authors: | OMER MOAV ZVIKA NEEMAN |
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| Institution: | 1. Department of Economics, Hebrew University of Jerusalem, Mount Scopus, Jerusalem 91905, Israel;2. Department of Economics, Royal Holloway, University of London, Egham, Surrey, England;3. and CEPR.e‐mail:omer.moav100@gmail.com;4. The Eitan Berglas School of Economics, Tel‐Aviv University, Tel‐Aviv 69978, Israel.e‐mail:zvika@post.tau.ac.il |
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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. |
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