Incentive problems in the adoption of new technology when the advisor is an interested party

Economics

Further details

Innovations that change the nature of the skills relevant for production generate a conflict of interests between the employer and his current employees. If an employer decides to adopt a new technology, he will also replace his specialist workforce. Thus, although a current employee has access to superior information concerning the efficiency of an innovation, he also has an incentive to misreport it. We identify the conditions under which no renegotiation-proof contract exists, which induces the employee to truthfully reveal his information. We then study the special case where the employee can ex-ante commit to make his information available to the principal (commitment to tranparency) and study the conditions under which this occurs at equilibrium.