Business, 10.06.2020 18:57 haleybug100300

A worker can choose high (H) or low (L) effort. If the worker chooses high effort, she incurs a personal cost of 1. In this case, output is high with probability one. If the worker chooses low effort, she incurs a personal cost of 0. In this case, output is low with probability one. When output is high, the firm receives revenue of O and zero otherwise. Can the same outcome be achieved when effort is unobservable? A. Yes, because the firm would find it wothwhile to pay the bonus for high effort.
B. No, because for any bonus offered, the worker will claim to have exerted high effort.
C. No, because the firm has to pay the bonus based on output.
D. Yes, because effort can be perfectly inferred from output, which is observable.

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A worker can choose high (H) or low (L) effort. If the worker chooses high effort, she incurs a pers...