One possible solution to an incentive problem arising under unobservable actions is:
A) pay more and make the worker efficient.
B) be the boss and fire the inefficient worker and send a signal to others.
C) buy the agent's right to his total output.
D) sell the agent the right to the total production.

Question

Quizplus · Accepted Answer

Selling the agent the right to the total production aligns the agent's incentives with the principal's, as the agent will be motivated to maximize output since they benefit directly from it.

One Possible Solution to an Incentive Problem Arising Under Unobservable