Labor Economics 5th Edition by George Borjas

Exercise 22

Consider three firms identical in all aspects except their monitoring efficiency, which cannot be changed. Even though the cost of monitoring is the same across the three firms, shirkers at Firm A are identified almost for certain; shirkers at Firm B have a slightly greater chance of not being found out; and shirkers at Firm C have the greatest chance of avoiding identification. If all three firms pay efficiency wages to keep their workers from shirking, which firm will pay the greatest efficiency wage Which firm will pay the smallest efficiency wage