The model of signaling games for the to evaluate its vender's abilities

Because of the asymmetric information in the outsourcing market of research and development activity, it is difficult for outsourcer to identify the ability of the vendor, which usually causes outsourcer to make adverse selection. In order to avoid such a problem, this paper proposes a model of signaling game in terms of the innovative ability level, and also analyses the outsourcer's best decision when the vendor transfers information to the outsourcer.