Chaigneau, Pierre; Edmans, Alex; Gottlieb, Daniel - C.E.P.R. Discussion Papers - 2014
This paper shows that the informativeness principle does not automatically extend to settings with limited liability …. Even if a signal is informative about effort, it may have no value for contracting. An agent with limited liability is paid … payment cannot fall further and so the principal cannot make use of the signal. Similarly, a principal with limited liability …