American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Intermediated Asymmetric Information, Compensation, and Career Prospects
American Economic Review
(pp. 3638–74)
Abstract
Adverse selection benefits firms able to identify talent. An informed intermediary expropriates agents' ability by threatening to fire and expose them to undervaluation of their skill. An agent's track record gradually reduces intermediary's information advantage. In response, the intermediary starts churning well-performing agents she knows are less skilled. The accelerated reduction in information advantage boosts profits, as retained agents accept below-reservation wages to build reputation faster. Agents prefer starting their careers working for an intermediary, as benefits from building reputation faster more than offset expropriation costs. Our analysis applies to professions where talent is essential and performance is publicly observable.Citation
Kaniel, Ron, and Dmitry Orlov. 2025. "Intermediated Asymmetric Information, Compensation, and Career Prospects." American Economic Review 115 (10): 3638–74. DOI: 10.1257/aer.20200169Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D82 Asymmetric and Private Information; Mechanism Design
- J23 Labor Demand
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- J63 Labor Turnover; Vacancies; Layoffs
- M51 Personnel Economics: Firm Employment Decisions; Promotions