You Are an Owner of a Popular Restaurant Chain,and You

question 60

Multiple Choice

You are an owner of a popular restaurant chain,and you are thinking about franchising additional stores.Which of the following approaches would be best at controlling incentive conflicts?

• A)Offer a fixed payment to the franchisee,and monitor the store? (issues of: shirking,adverse selection,and monitoring costs)
• B)Let franchisee keep all profit above the franchise payment but do not monitor (must compensate agents for bearing risk)
• C)Profit-sharing contract and conducting some monitoring (issue with some shirking and some risk compensation)
• D)Mix of fixed payment and incentive compensation.

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