A good salesperson can sell $1,000,000 worth of goods, while a poor one can sell only $100,000 worth of goods. Job applicants know if they are good or bad, but the firm does not

A firm will offer job applicants a choice between a fixed salary of $25,000 or 20% commission. Assuming risk-neutral salespersons and the possibility of opportunistic behavior, will this choice of contracts allow the firm to distinguish between good salespersons and bad ones before the hiring decision is made?


Under commission, a good salesperson will earn $200,000 and a poor salesperson will earn $20,000. A fixed salary that is above $20,000 but less than $200,000 would be preferred only by poor salespersons. The $25,000 will work at screening out poor salespersons as long as the income that bad salespersons could earn elsewhere is at least $20,000, but less than $25,000. If the poor salesperson's opportunity cost of working for this firm is less than $20,000, he might accept the commission plan just to send the false signal that he is a good salesperson, and, therefore, be hired.

Economics

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Which of the following countries has gone so far as to adopt the U.S. dollar as its domestic currency?

A. Panama B. Ecuador C. Zimbabwe D. All of the above

Economics

The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash caused:

A. aggregate supply to shift left, but still far below its pre-crisis level. B. aggregate demand to shift right to its pre-crisis level. C. the opposite reaction, and aggregate supply shifted farther to the left. D. aggregate supply to shift right to its pre-crisis level.

Economics

In the circular flow diagram, money income and revenue ______.



a. are flowing in the same direction
b. form a hub that other items flow around
c. are both elements of the input market
d. represent forms of capital

Economics

You are the manager of a gas station and your goal is to maximize profits. Based on your past experience, the elasticity of demand by Texans for a car wash is ?4, while the elasticity of demand by non-Texans for a car wash is ?6. If you charge Texans $20 for a car wash, how much should you charge a man with Oklahoma license plates for a car wash?

A. $18.00 B. $15.00 C. $1.50 D. $20.00

Economics