The Value of Signals in Hidden Action Models: Concepts, Application, and Empirical Evidence

Since the fundamental work of Walras (1874), markets have received particular attention by economists because they lead to an efficient allocation of goods and services. However, the proper functioning of markets rests on certain assumptions. For instance, the good or ser­ vice which is to be traded must be clearly defined. This elementary requirement is often violated in reality, in particular when services are concerned. Consider the example of railway workers who are hired to lay tracks....