Training workers generates adverse selection when there is ex-ante asymmetric information about the workers' learning abilities. Under-provision of training arises from the firm's attempt to mitigate the quality of “lemons” in the post-training adverse selection problem. With moral hazard in...

This paper studies how reduced oversight creates an incentive for process innovation. With incomplete contracts, tight monitoring of workers creates a ratchet effect of innovation. Under reduced oversight, a worker accrues private knowledge about his innovation, which serves as a substitute for...