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Author Question: A risk-averse manager is hired to run a firm for shareholders. If shareholders cannot observe the ... (Read 304 times)

Marty

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on: Jul 1, 2018
A risk-averse manager is hired to run a firm for shareholders. If shareholders cannot observe the manager's effort, which would be the best employment contract?
 a. a high-powered incentive contract to elicit maximum effort.
  b. a fixed salary.
  c. a moderately powered incentive scheme that elicits some effort without exposing the manager to too much risk.
  d. an incentive scheme that provides maximum incentives and maximum insurance.

Question 2

A risk-averse manager is hired to run a firm for shareholders. If the manager's effort can be observed and specified in a contract, which would be the best employment contract?
 a. a high-powered incentive contract to elicit the most effort.
  b. a fixed salary paid as long as the required effort is undertaken.
  c. a proportion of profits paid as long as the required effort is undertaken.
  d. a wage well in excess of his or her outside opportunity.


ktidd

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Reply #1 on: Jul 1, 2018
Answer to Question 1

c

Answer to Question 2

b


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Marty

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Reply #2 on: Jul 1, 2018
Correct answers!


ktidd

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Reply #3 on: Jul 1, 2018
Great! Please up vote :D


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