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:

Evaporation

The process where liquid water transforms into vapor and enters the atmosphere.

Precipitation

Any form of water - liquid or solid - falling from the atmosphere to the surface of the Earth, including rain, snow, sleet, and hail.

Rain Forests

Dense, usually tropical forests, characterized by high rainfall, rich biodiversity, and a canopy structure with multiple layers of vegetation.

Equator

An imaginary line around the middle of the Earth, equidistant from the North and South Poles, dividing the Earth into the Northern and Southern Hemispheres.