Assignment:
Just as the market distributes goods most equitably by utilizing supply and demand, the firm must properly offer incentives to its employees to motivate them. Please help me consider how different types of compensation systems are utilized in each scenario.
1. Personal injury lawyers may be paid a contingency fee equal to a percentage of the amount awarded. The lawyer receives payment only if his or her client wins the case and is awarded a sum of money. Lawyers in other types of cases are often paid on an hourly basis. Use the principala-gent relationship to assess the merits and drawbacks of each type of fee arrangement from the client's (i.e., the principal's) perspective. Be sure to discuss incentive effects.
2. What type of compensation policy would you expect to observe in an industry with rapidly changing technology? Explain.
3. What type of compensation policy would you expect to observe in an industry where technology changes are few and far between?
4. Explain why you tend to find more shirking, more corruption, and more inefficiency in large firms than you do in small firms. Explain why you tend to find more shirking, more corruption, and more inefficiency in government than you do in large firms.
5. In an advertisement for a professional employment organization it was stated: "Outsourcing can be a cost-effective alternative to the expense and administrative burden of a traditional employer-employee relationship." Evaluate the costs and benefits of outsourcing employees. What market-failure problems could be created or eliminated by outsourcing?