An efficiency-wage premium serves the same function as a bond because, just as with a bond, the premium represents
A) the amount the employee loses if caught shirking.
B) the expected value of the amount the employee loses if he shirks.
C) the cost of monitoring the employee.
D) the gain to the employee if he shirks.
Question 2
The benefit to employers of deferred-payments is that
A) adverse selection is eliminated.
B) employers cannot engage in any opportunistic behavior.
C) these payments raise the cost of being fired, so more monitoring is needed.
D) these payments raise the cost of being fired, so less monitoring is needed.
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