Suppose That a Publisher Is Considering How to Pay an Author

question 17

Essay

Suppose that a publisher is considering how to pay an author for writing a book. The publisher would like the author to put forth his maximum effort, but the publisher is unable to observe the author's effort.
a. In this example, who is the principal and who is the agent?
b. What is the moral hazard in paying an author a fixed fee for writing a book? Is there an alternative way of paying the author that would lead to greater effort?

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Definitions:

Race

A social construct used to categorize humans based on physical characteristics, ancestry, and genetics, despite the broad genetic overlap among humans.

Optimistic Explanatory Style

A tendency to attribute positive events to stable and global causes and negative events to transient and specific causes.

Health Problems

Issues affecting the body or mind that influence overall well-being and functioning.

Actions

Any acts or deeds taken by an individual, which can be observed externally and may be driven by intention, motivation, or external influence.