INCENTIVES FOR INFORMATION PRODUCTION AND OPTIMAL JOB ASSIGNMENT WITH HUMAN-CAPITAL CONSIDERATIONS

In this paper we examine the problem of inducing a manager to acquire information which is useful in determining his optimal job assignment, but which might also adversely affect his market value. We show that spot contracts are optimal and generate the first-best effort level when the manager is risk-neutral. When the manager is risk-averse, the optimal contact consists either of a partial insurance contract against downward revisions in compensation or a competitive spot contract, depending upon the nature of prior information.