Profit-sharing contracts are designed to
A) mitigate the moral hazard problem.
B) be fair with the workers.
C) be used in situations in which shirking is not possible.
D) All of the above.

Question

Quizplus · Accepted Answer

Profit-sharing contracts are designed as incentive schemes to mitigate the moral hazard problem by aligning the interests of the workers with those of the firm. The workers are given a share of the profits based on their performance, which motivates them to work harder, reducing the likelihood of shirking. While profit-sharing can be fair to workers, it is primarily designed to mitigate the moral hazard problem, making option B a less accurate answer. Option C is incorrect because profit-sharing can be used in situations where shirking is possible, but the contract would be designed to limit shirking behavior. Thus, option D is also incorrect.

Profit-Sharing Contracts Are Designed to