If a salesperson is paid by the volume of sales he or she makes, then the
A) moral hazard problem is diminished.
B) moral hazard problem is enhanced.
C) adverse selection problem is enhanced.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

When a salesperson is paid by the volume of sales, they have an incentive to work harder and sell more, which reduces the moral hazard problem of shirking on the job or not trying to make the sale. The adverse selection problem, which relates to the quality of the product being sold, is not affected by the mode of payment for the salesperson.

If a Salesperson Is Paid by the Volume of Sales