Workers do not know the safety records at individual firms; they only know industry averages.As a result,
A) each firm tries to outdo each other in making safety improvements.
B) each firm has the incentive to be the safest in its industry.
C) the equilibrium level of safety is less than optimal.
D) the optimal level of safety is achieved.

Question

Quizplus · Accepted Answer

If workers only know industry averages, firms do not face a strong competitive pressure to improve safety beyond what is required to meet the industry average. This can result in a situation where the level of safety is less than optimal, because firms are not incentivized to invest in additional safety measures beyond what is required to meet the industry average. Therefore, the equilibrium level of safety is less than optimal.

Workers Do Not Know the Safety Records at Individual Firms;