Multiple Choice
A risk-averse manager is hired to run a firm for shareholders. If shareholders cannot observe the manager's effort,which would be the best employment contract?
A) a high-powered incentive contract to elicit maximum effort.
B) a fixed salary.
C) a moderately powered incentive scheme that elicits some effort without exposing the manager to too much risk.
D) an incentive scheme that provides maximum incentives and maximum insurance.
Correct Answer:
Verified
Correct Answer:
Verified
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