Consider the following information: Income to the firm from workers who sell door-to-door Bad Luck Good Luck Low Effort (e = 0) $5,000 $7,000 High Effort (e = 1) $7,000 $13,000 Cost of effort: c = $2500e Probabilities: Bad luck = .75; Good luck = .25
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Consider the following information:
Income to the firm from workers who sell door-to-door
| Bad Luck | Good Luck |
|
Low Effort (e = 0) |
$5,000 | $7,000 |
|
High Effort (e = 1) |
$7,000 | $13,000 |
Cost of effort: c = $2500e
Probabilities: Bad luck = .75; Good luck = .25
Under which of the following payment schemes would workers have an incentive to exert high effort?
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