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Assembly line work hard

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A company does not know whether workers on an assembly line work hard or whether they slack off. A solution for this situation is to pay the workers "piece rates," that is, pay them according to how much they have produced each day. All workers are risk-averse, but the company is not risk-neutral.

A. This is a situation of moral hazard; the company does not know how much effort a worker expends.

B. This is a situation of adverse selection; the company does not know how much effort a worker expends.

C. This is neither adverse selection nor moral hazard.

Reference no: EM131968009

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