If all issues of effort,output,and pay are fully observable and contactable between an owner and an employee,then:
A)incentive conflicts can be eliminated.
B)incentive conflicts remain intractable.
C)the utility of the employee is unimportant to the outcome.
D)revenues of the firm are independent of employee effort.

Question

Quizplus · Accepted Answer

When all issues of effort, output, and pay are fully observable and contractible between an owner and an employee, incentive conflicts can be eliminated because the terms of the contract clearly state what is expected from the employee and what they will be paid for their work. The employee has an incentive to work hard and produce quality output to earn their pay, and the owner has an incentive to properly compensate the employee for their efforts.

If All Issues of Effort,output,and Pay Are Fully Observable and Contactable