Ed was recently hired as a salesman for a national consulting firm.His job involves spending a significant portion of his time out of the office visiting prospects and attending conferences.His firm is paying him a wage that is higher than the equilibrium wage,but he receives much of his income in quarterly bonuses based on how much he sells.
A) The consulting firm is trying to prevent adverse selection with its compensation strategy.
B) Ed has an incentive to go golfing with his buddies rather than conducting sales meetings.
C) The consulting firm is responding to the moral hazard problem with its compensation strategy.
D) Ed should quit this job and take a job where he gets paid an equilibrium wage more frequently.

Question

Quizplus · Accepted Answer

The consulting firm is using bonuses to align Ed's incentives with the firm's goals, addressing the moral hazard problem by encouraging him to focus on sales performance.

Ed Was Recently Hired as a Salesman for a National