question archive A company does not know whether workers on an assembly line work hard or whether they slack off
A company does not know whether workers on an assembly line work hard or whether they slack off
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A company does not know whether workers on an assembly line work hard or whether they slack off. A solution for this situation is to pay the workers "piece rates," that is, pay them according to how much they have produced each day. All workers are risk-averse, but the company is not risk-neutral. Which of the following statements is true?
A. This is a situation of moral hazard; the company does not know how much effort a worker expends.
B. This is a situation of adverse selection; the company does not know how much effort a worker expends.
C. This situation involves neither adverse selection nor moral hazard.
Option 1
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Option 2
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