When One Party to a Transaction Has Incentives to Engage

question 23

Multiple Choice

When one party to a transaction has incentives to engage in activities detrimental to the other party,there exists a problem of

• A)moral hazard.
• B)split incentives.
• C)ex ante shirking.
• D)pre-contractual opportunism.

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Definitions:

Payroll Taxes

Charges applied to employers or their workers, typically measured as a fraction of the earnings paid by companies to their employees.

Direct Labor

The labor costs of workers who are directly involved in the production of goods or the rendering of services.

Direct Labor Hour

A measure of the amount of time workers spend directly manufacturing a product.

Direct Materials

Raw materials that can be directly traced to the production of specific goods or services and are significant in cost.