If Information Is Asymmetric,explain Why the Hire Contract Is Not

question 73

Essay

If information is asymmetric,explain why the hire contract is not efficient in production and a moral hazard exists,but the fixed fee to the principal contract is efficient and does not pose a moral hazard problem.

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Definitions:

Salivary Glands

Glands located in the mouth that produce saliva, which begins the process of digestion and keeps the mouth moist.

Mandible

The lower jaw or jawbone, the largest and strongest bone of the face.

Descending Colon

The part of the colon that travels downwards on the left side of the abdomen, responsible for storing the remains of digested food that will be emptied into the rectum.

Sigmoid Colon

An S-shaped tube that lies between the descending colon and the rectum.