Profit-sharing contracts are designed to
A) mitigate the moral hazard problem.
B) be fair with the workers.
C) be used in situations in which shirking is not possible.
D) All of the above.
Question 2
Shay is risk averse and has a reservation wage of 50. She is offered two different labor contracts. One is a fixed wage of 100 per day, and the other is a piece-rate contract. In the latter, the pay rate is 1 per piece. In a good day she sells 160 units, and in bad day she sells 40 units. The likelihood of a good or a bad day is 50.
A) Shay accepts the fixed wage contract.
B) Shay declines both contracts.
C) Shay accepts the piece-rate contract.
D) Shay is indifferent between both contracts.
Chinese workers on a railway in the far West. “Without them,” Leland Stanford, president of the Cent
Vector Problem
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