Company A allows its employees' flexibility to work from home about 80% of the time. So, employees are required to come to the office 1 day a week (5 days work week). Since 24-hour monitoring of employee activity is not possible, how Company A handles the problem of asymmetric information and action.

1. Discussing the nature of the moral hazard inherent in this work arrangement on the part employees.

2. Discuss work/human resource policies and productivity/performance merits that can be employed and make hidden action less hidden.

1)

The employees may not be serious or disciplined to work when they are working from home. Employees may not inform the company about their issues and hence work arrangement may be affected. Employees may take a longer time to complete the work, or leave the work incomplete or may not concentrate on the quality of work. This way, assuming that they are free to work on their preferences, at their convenience, and there is no cost of any malfunction, employees may compromise on production.

2)

The actions taken by employees as discussed above are hidden. If a company wants to remove this information asymmetry, the company can use the following measures:

The company can reduce the flexibility to work from home to 50%. This way the issue will itself reduce.

If this is not preferable, then the company can put performance incentives like a bonus for additional work, adding targets and incentives for those who exceed the targeted work. There can timely reporting in a day of work completed in a prescribed time and those who do not complete given targets may be cut on their incentives.

There can be competition among the employees for non-money rewards for completing prescribed work or achieve the desired outcomes, using innovative ways.

This way, the company can gain information about the productivity of employees and reduce the issue of moral hazard.