Paying salespeople a fixed wage contract, one in which income does NOT depend on the volume of sales, avoids
A) both adverse selection and moral hazard.
B) neither adverse selection nor moral hazard.
C) adverse selection but not moral hazard.
D) moral hazard but not adverse selection.

Question

Quizplus · Accepted Answer

A fixed wage contract does not address adverse selection, which involves hidden information about the salesperson's ability, nor does it address moral hazard, which involves hidden actions like effort level after being hired.

Paying Salespeople a Fixed Wage Contract, One in Which Income