Adverse selection means that as a firm grows and adds personnel, the new hires typically do not have the same ownership incentives as the original founders, so the new hires may not be as motivated as the founders to put in long hours or may even try to avoid hard work.

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Adverse selection refers to a situation where sellers have information that buyers do not have, or vice versa, about some aspect of product quality. In the context of insurance, it describes a situation where an individual's demand for insurance is positively correlated with their risk of loss, leading to higher risk individuals being more likely to buy insurance. It does not directly relate to the motivation or work ethic of new hires in a firm compared to its founders.

Adverse Selection Means That as a Firm Grows and Adds