Incentive-compatible employment contracts exist when:
A) the firm and workers have the same objective.
B) owners and managers have the same level of income.
C) incentives of owners and managers are compatible with, though not necessarily the same as, one another.
D) owners and managers have the same objectives as consumers of the products they produce.
E) base pay for managers is equal to the profit share they realize.

Question

Quizplus · Accepted Answer

Incentive-compatible employment contracts exist when the incentives of owners and managers are compatible with, though not necessarily the same as, one another. This implies that a balance must be struck between the interests of workers and the interests of managers and owners, and that incentives must be designed so that both parties benefit in the long-run. The other choices do not accurately describe incentive-compatible employment contracts.

Incentive-Compatible Employment Contracts Exist When