Question: An apartment owner advertises for lawn mowing services for a number of apartments he owns. He has some idea of the going price and so he advertises that he will pay $100 per month per apartment complex. So why is he disappointed that the winning contractor only provides minimal services?
My answer: The apartment owner didn't effectively use his ad to screen out the low value workers. He didn't anticipate the potential for adverse selection by simply posting the amount to be paid. His posting didn't advertise the requirements that he was expecting for the $100 per month per apartment complex. The winning contract is doing the minimal service to get the $100. There is no incentive for them to worker harder when they are receiving the maximum amount of pay.
Did I miss any key point?
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