Final answer:
The concept described is known as adverse selection, which refers to difficulties in hiring the right employees as the firm grows due to informational asymmetries. It's different from moral hazard, another business problem, where people behave riskier when insured.
Step-by-step explanation:
The scenario described in the question is one that demonstrates the concept of adverse selection in the business environment. Adverse selection occurs when one party in a transaction has more or better information than the other party. In the context of hiring and staffing, adverse selection means that as a firm grows and its need for more employees increases, it may struggle to find the right employees due to informational asymmetries. The best candidates may already be employed elsewhere and those who do apply might not have the optimum qualifications, thus making it increasingly difficult for the firm to place the right people in appropriate positions and supervise them properly.
Another related problem in the business and insurance sectors is the moral hazard, which arises when a party that is insulated from risk behaves differently than if it were fully exposed to the risk. This can occur when businesses or individuals have insurance and so may take greater risks, knowing that the insurance will cover the consequences of those risks. For example, firms with comprehensive insurance may be less rigorous in implementing safety measures compared to those without coverage, as they rely on insurance to mitigate the potential costs of risks.
Effective Strategies to Overcome Imperfect Information
To combat issues of imperfect information, various mechanisms can be employed. These might include thorough hiring processes, implementing probational periods for new hires, offering incentives for performance, and using referrals which can help to ensure a candidate's capabilities and fit for the position.