Abstract:By using the asymmetric information about the ability of the principal (headquarters of state-owned enterprises) and the agent (managers of manufacturing units) on the latter’s cost control, the excellent managers have the motivation to make low efforts in the current period and pretend to be ordinary managers, so as to avoid the more stringent performance requirements of cost control in the next period, which leads to the ratchet effect. In order to restrain this effect and achieve high efficiency of cost control, the principal needs to identy the type of managers, but faces high information rent. Considering two-period incentive scheme with(without) intertemporal promise and the interfering factors of external managerial labor market, the game between headquarters and manufacturing units is modeled to be perfect Bayesian equilibrium. This study constructs a dynamic adverse selection model and designs optimal incentive schemes to discuss condition and information rent that will motivate managers exerting high effort under separating equilibrium. Research result shows that the competition between private enterprises and state-owned enterprises for talents weakens the ratchet effect and reduces the information rent.