It was more than a century ago that an engineer named Frederick Taylor walked into factories and starting timing workers with a stop watch. He dissected their movements, and organized them more efficiently. The monitoring tool, the 21st century equivalent of Taylor's stopwatch, is the computer. Those of us who use them produce rivers of data describing the hours of our work day. Suppose modern firms pay employees based on the quantity of work completed each day as monitored through computers by managers. How would this solve the principal-agent problem?

Question

Quizplus · Accepted Answer

Paying employees based on the quantity of work completed each day would provide an incentive for them to work harder and produce more. This solves the principal-agent problem as it aligns the interests of the employee (who wants to earn more through higher productivity) with the interests of the employer (who wants higher productivity).

It Was More Than a Century Ago That an Engineer