An Efficient Allocation of Risk Among Employees and Owners Must

question 10

Multiple Choice

An efficient allocation of risk among employees and owners must:

• A) take into account that performance-based incentives are the sole important component of an employee's salary.
• B) take into account that attitudes toward risk differ among different people.
• C) recognize that inefficiency is inherent to the process.
• D) recognize that pooling of risks is never appropriate.

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Definitions:

Tradable Pollution Permits

A market-based approach to controlling pollution by allocating permits that allow the holder to emit a certain amount of pollution, which can be traded among companies.

Emissions

The act of releasing substances, especially pollutants, into the atmosphere or environment.

Government

An organized system that establishes and enforces rules and institutions to govern a community, region, or country.

Firms

Business entities that produce goods or provide services to consumers, aiming to maximize profits.