At Agile Ltd., a cross-functional team is formed to work on a project for a new client. The team consists of Charles and four other members. At most of the team's presentations to senior management, Charles takes the lead and discusses project specifics with the management, while others chip in with additional information. At the completion of the project, Charles is recommended for promotion, while the other team members receive little recognition for their hard work. The reality is that Charles did very little actual work but spent some time compiling the project report based on different documents submitted by the others. This scenario at Agile Ltd. is a typical consequence of

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This scenario at Agile Ltd. is a typical consequence of adverse selection. In general, adverse selection occurs when information asymmetry increases the likelihood of selecting inferior alternatives. In principal-agent relationships, for example, adverse selection describes a situation in which an agent misrepresents his or her ability to do the job. Such misrepresentation is common during the recruiting process. The problem is especially pronounced in team production, when the principal often cannot ascertain the contributions of individual team members. This in turn creates an incentive for opportunistic employees to free-ride on the efforts of others.