Describe the principal agent problem that can exist in the labor market. What signals can an employer look for that might indicate the traits they are seeking in a new employee? What steps can an employer take to motivate employees and reduce the potential for “shirking” that might occur due to the principal-agent problem?

Describe the principal agent problem that can exist in the labor market. What signals can an employer look for that might indicate the traits they are seeking in a new employee? What steps can an employer take to motivate employees and reduce the potential for “shirking” that might occur due to the principal-agent problem?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 4.3IP

See similar textbooks

Similar questions

Deferred compensation is another practice that employers may choose to adopt in certain circumstances. Based on your understanding of the course material, describe three benefits an employer might experience from using deferred compensation.
In your opinion, is it better to focus on assessing and developing employees' weaknesses or to focus on their strengths? Why?
An employer faces two types of employees. Regular workers at 90% of the population and generate $75,000 in productivity. Exceptional workers are 10% of the population and generate $100,000 in productivity. Employers know their types and rejects salaries below their productivity. If employer offers a salary equal to the average productivity in the population, what will be the employer’s per employee profit? How can this be fixed?
Jim Range is the manager at a USPS office which requires arduous physical labor of their employees. Jim wants to hire an employee. During the interview, Sofia Caster tells Jim that she is a hard worker. But Sofia Caster realizes once she is hired that the federal government and its agencies cannot fire their employees unless their performance is extremely poor. She thus decides to work minimally as a result of this information. The problem was created because of? Misaligned incentives. Moral hazard. A OB c Asymmetric information. OD. The principle agent problem.
When you are self-employed, you are responsible for— meeting the expectations or your employer, getting a paycheck from an employer, providing all of your own income and fringe benefits, ignoring the needs of your clients
Question 1 You are the human resource manager at a large organization. Each worker in your organization produces output valued at $15 per hour (ie. VMP = $15). You want to deter shirking and turnover by paying a deferred wage profile where the hourly wage is W = 4/5T, where T is tenure, or length of time that the person remains with the firm. Draw the diagram of the deferred wage profile. Solve for the breakeven point, or length of time the person would have to stay with the firm so that her wage would just equal their productivity. Determine the length of time she would have to stay with the firm for her expected wage over that period to just equal her productivity (assume no discounting so that a dollar today is the same as a dollar in the future). If the vast majority of the people start working with the firm at age 35, what mandatory retirement age would you pick to provide a termination data to that contractual agreement?
suppose you are hiring a worker for your firm. you advertise a position for $50,000, but an applicant offers to work for 40,000. Should you jump to this offer?
Lucy and Lincoln are salespeople working for the same company with equal skills, ability, and experience. Both are paid a small base salary but the majority of their compensation is in the form of a commission, which is a percentage of the sales they make. Lucy earns more each year than Lincoln. What can you conclude about Lucy and Lincoln.
Studies by Edwards and Meyer show that employers and teachers value different personality traits. In particular employers put a high value on creativity andindependence. True False
Give examples of possible employee benefits
Answer the following sub-questions using economic theory, the principal agent theory and empirical evidence. Most UK and American CEOs are paid significantly more than the average employee of their firms. Does this fact suggest that CEOs are overpaid? French and German CEOs earn considerably less than US CEOs, does this suggest that US CEOs are overpaid? The firm’s stock market price is uncorrelated with the FTSE100 index. In economic terms, does it make sense to pay the firm’s CEO based on the FTSE100 index? Explain. Taking into account the article by Bebchuk et al “The Wages of Failure”, discuss the advantages and disadvantages of incentive pay and the problems of incentive pay in the case of Bear Stearns and Lehman Brothers. Also discuss reforming incentive pay to deal with the problems unearthed at Bear Stearns and Lehman Brothers
An employer faces two types of employees. Regular workers at 90% of the population and generate $75,000 in productivity. Exceptional workers are 10% of the population and generate $100,000 in productivity. Employees know their types and reject salaries below their productivity. If employer offers a salary equal to the average productivity in the population, what will be the employer’s per-employee profit? How can this be fixed?