Stella accepts a job as vice president for human resources at a technology startup. She discovers that the startup believes that teamwork is so important that it plans to award all raises and bonuses by splitting them equally within a team rather than presenting them to individual employees. What action should Stella take regarding this plan?

Question

Quizplus · Accepted Answer

In general, adverse selection occurs when information asymmetry increases the likelihood of selecting inferior alternatives. The problem is especially pronounced in team production, when the principal often cannot ascertain the contributions of individual team members. This creates an incentive for opportunistic employees to free-ride on the efforts of others.

Stella Accepts a Job as Vice President for Human Resources