In the Presence of Asymmetric Information, a Piece-Rate Contract

question 100

Multiple Choice

In the presence of asymmetric information, a piece-rate contract

• A)is not as good as a contract based on commissions.
• B)can lead to agents producing more output than would occur under a fixed-rent-paid-to-the-principal contract.
• C)is impossible to write.
• D)will result in the principal earning all of the profit.

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Definitions:

Bad Business Decision

A judgment made in a business context that leads to outcomes failing to meet desired or expected objectives, often resulting in financial loss or missed opportunities.

Corporate Officer

An individual holding a position of authority in a corporation, often involved in high-level decisions and responsible for the day-to-day management and operational decisions.

Corporate Employees

Individuals who are hired to work for a corporation and often enjoy certain benefits and legal protections.

Directors

Individuals elected by shareholders to oversee and make decisions for a corporation.