Deck 12: Incentives and Organization

Question 1

In a field experiment, a man who did not need dental treatment consulted 180 dentists. 50 dentists recommended at least one filling. Explain the moral hazard.

A) The "patient" was less well informed about his condition than the dentists.
B) The 50 dentists exploited his ignorance to recommend treatment that was unnecessary but would increase their earnings.
C) Both a and b.
D) Neither a nor b.

Answer 1

C

Question 2

Why might it be better to pay sales staff a commission on their sales rather than an hourly wage?

A) Encourages the salespersons to increase their effort (which the employer cannot observe).
B) Increases the risk on salespersons.
C) Both a and b.
D) Neither a nor b.

Answer 2

A

Question 3

Consider that extraneous factors might affect a worker's performance. Why does pay based on performance increase the risk that the worker bears?

A) The extraneous factors can degrade or enhance the worker's performance.
B) The worker has asymmetric information about the extraneous factors.
C) The extraneous factors are unpredictable.
D) a and b.
E) a and c

Answer 3

E

Question 4

How would work from home affect the degree to which supervisors can monitor the members of their team?

A) Reduce.
B) Increase.
C) No change.

Question 5

Explain the differences between moral hazard and holdup.

A) Moral hazard arises when a party who is better informed about her actions.
B) Holdup can occur even if information about actions is symmetric.
C) a and b.
D) Neither a nor b.

Question 6

Compare acting that involves nudity with that which does not involve nudity. Which scenes involve greater potential for hold up by the producer or actor?

A) Nude scenes.
B) Scenes that do not involve nudity.
C) Neither: the same.

Question 7

Which method of transporting natural gas involves a larger sunk investment - pipeline or tanker?

A) Pipeline.
B) Tanker.
C) Neither: the same.

Question 8

Compare an employee driver of a taxi company with an Uber contractor driver. In which case does the driver own greater residual rights to her income from work?

A) Employee driver.
B) Uber contractor.
C) Neither: the same.

Question 9

A single restaurant and a chain are each considering whether to set up their own delivery service or contract with Deliveroo. What factor would make it more likely that the single restaurant should outsource deliveries.

A) Moral hazard.
B) Potential for holdup.
C) Lack of economies of scale.
D) None of the above.

Question 10

Consider a manufacturer which depends on a monopoly supplier of some essential input. Why should the manufacturer consider producing the input in-house?

A) Moral hazard.
B) Potential for holdup.
C) Economies of scale.
D) None of the above.

Question 11

In a field experiment, a man who did not need dental treatment consulted 180 dentists. Fifty dentists recommended at least one filling. Explain the moral hazard.

Question 12

Why might it be better to pay sales staff a commission on their sales rather than an hourly wage?

Question 13

Consider that extraneous factors might affect a worker's performance. How does pay based on performance affect the risk that the worker bears?

Question 14

How would work from home affect the degree to which supervisors can monitor the members of their team?

Question 15

Explain the differences between moral hazard and holdup.

Question 16

Contracts for acting that involve nudity are more detailed than those that do not involve nudity. Why?

Question 17

Which method of transporting natural gas involves a larger sunk investment - pipeline or tanker?

Question 18

Compare (i) an Uber contractor driver with (ii) an employee driver of a taxi company. In each case, who owns the residual rights to the income from the driver's work?

Question 19

A single restaurant and a chain are each considering whether to set up their own delivery service or contract with Deliveroo. What factor would make it more likely that the single restaurant should outsource deliveries.

Question 20

Consider a manufacturer which depends on a monopoly supplier of some essential input. Why should the manufacturer consider producing the input in-house?