The benefit to employers of deferred payments is that
A) adverse selection is eliminated.
B) employers cannot engage in any opportunistic behavior.
C) these payments raise the cost of being fired, so more monitoring is needed.
D) these payments raise the cost of being fired, so less monitoring is needed.

Question

Quizplus · Accepted Answer

Deferred payments raise the cost of being fired, so less monitoring is needed. This is because the employee has an incentive to stay with the employer for a longer period of time, which reduces turnover costs for the employer. In addition, the deferred payments act as a form of commitment device for the employee, which reduces the likelihood of opportunistic behavior by the employer. However, this does not eliminate adverse selection, as lower-performing employees may still be more likely to accept deferred payments.

The Benefit to Employers of Deferred Payments Is That