Inputs, Asymmetric Information, and Incentives at the Workplace
Abstract: This paper studies how information asymmetries over inputs between workers and managers affect the response to incentives and selection at the workplace. We develop a principal-agent model with heterogeneity and asymmetric information over input quality and worker type, and test the model predictions using personnel data from a Peruvian egg production plant. Exploiting a sudden change in the worker salary structure, we show that heterogeneity along both margins of input quality and worker type significantly affects workers’ effort choice, firm profits, and worker participation differentially after the implementation of the new incentive regime. Our study reveals how information asymmetries shape the response to incentives and selection at the workplace, with implications for the design of incentive contracts.
