How might a negative base salary be implemented in reality

Assignment Help Econometrics

Reference no: EM13200459

The value of a successful project is $420,000; the probabilities of success are 1/2 with good supervision and 1/4 without. The manager is risk-neutral, not risk-averse as in the text, so his expected utility equals his expected income minus his disutility of effort. He can get other jobs paying $90,000, and his disutility for exerting the extra effort for good supervision on your project is $100,000.

A) Show that inducing high effort would require the firm to offer a compensation scheme with a negatibe base salary; that is,if the project fails, the manager pays the firm an amount stipulated in the scheme.

B) How might a negative base salary be implemented in reality?

C) Show that if a negative base salary is not feasible, then the firm does better to settle for the low-pay, low-effort situation.

Reference no: EM13200459

Questions Cloud

Contribution to the security of a state—its economy : Which do you consider to be the more important contribution to the security of a state—its economy or its military? Why? How are the two related?

What is length of shortest side of similar triangle : the lengths of the sides of a triangle are 5, 6, and 7. if the perimeter of a similar triangle is 36, what is the length of the shortest side of the similar triangle?

State how many lots of assorted ski wear : Lakewood Fashions must decide how many lots of assorted ski wear to order for its three stores. Information on pricing, sales, and inventory costs has led to the following payoff table, in thousands.

Biological fight or flight response : Many communication scholars liken communication apprehension to the innate biological “fight or flight” response.

How might a negative base salary be implemented in reality : The value of a successful project is $420,000; the probabilities of success are 1/2 with good supervision and 1/4 without. The manager is risk-neutral, not risk-averse as in the text, so his expected utility equals his expected income minus his di..

Determine the length of each side : a triangle has sides that are of unknown lengths, but if one side is 12 x, the other sides are 5x and 6 x. Its perimeter is 52 inches. Determine the length of each side, show the steps of your answer clearly, check your answer and then state you a..

Patient and caregiver roles matrix : Patients and caregivers may conform to a specific role during a health care visit. This usually happens because of cultural background or the upbringing of either the patient or the caregiver.

How far from home is ben : Mary works due north of home. Her husband Ben works due east. They leave at the same time, Mary is 5 miles from home, the distance between them is 1 mile more than Ben's distance from home. How far from home is Ben?

Find out the amplitude of the motion : A person bounces up and down on a trampoline, while always staying in contact with it. The motion is simple harmonic motion, and it takes 1.98 s to complete one cycle. The height of each bounce above the equilibrium position is 54.0 cm.

User Account

All Pages