Tournaments Mechanism Under Asymmetric Information Of Ability And Preference

Human is an important factor in the human resource management, so, how toexhibit the peoples’ creative and inititave will need more incentive constract, however,every one knowns when pricinpal is designing the incentive mechanism, they usuallycan’t know the agents’ ability and preference which will lead to the asymmetricinformation and then the resource allocation will be a lower effiency. To get a highereffiency, the principal will make an optimal incentive mechanism based on the agents’different ability and preference. With the theroetical analysis and numetrical analysis,this paper has a research on the moral hazard and adverse selection, the purpose is toprovide a theoretical for the external labor market.First, under the symmetric information, the ability and preference will have aneffect on the effort level, incentive structure and expected utility, to a much further;they will affect the competition ways. So, principal have to consider the ability andpreference when they design the optimal tournaments mechanism. To maximize theexpected utility, this paper studies the agents’ moral hazard, and finds that when theprincipals set wage gap and race structure, they will not neglect the effect factors.Then, under the asymmetric information, this paper points that the agents’ have anintention to hide their true abilty and preference, so they have to know all the agentsprivate information before they make an optimal tournaments mechanism. For thepurpose of maxmism expected utility, this paper studies the principals’ adverseselection, and finds that the lower ablity agents can’t hide their true information whenthey race with the high ablity agents and the self-interest agents have a high propabiltyto hide their information when they find their opponent have a fairness preference, butthe fairness preference agents wouldn’t hide their private information when they knowtheir opponent have no fairness preference; moreover, the pricinpal will have a greaterexpected profit under the symmetric information than under the asymmetricinformation.