A firm uses an efficiency wage scheme to deter workers from shirking.A risk-neutral worker will NOT shirk if
A) the expected loss from being fired is larger than or equal to the gain from shirking.
B) the expected loss from being fired is smaller than the gain from shirking.
C) the gain from shirking is positive.
D) the expected loss from being fired is zero.

Question

Quizplus · Accepted Answer

A risk-neutral worker will not shirk if the expected loss from being fired (which includes losing the efficiency wage) is larger than or equal to the gain from shirking. This creates a disincentive to shirk because the potential costs outweigh the benefits.

A Firm Uses an Efficiency Wage Scheme to Deter Workers