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The Difference Between a "Trust" Contract and an "Incentive" Contract

Question 28

Multiple Choice

The difference between a "trust" contract and an "incentive" contract is that:


A) The former relies on external rewards and punishments to motivate performance while the latter appeals to an agent's goodwill and desire to do one's best.
B) The former relies on appeals to an agent's goodwill and desire to do one's best while the latter relies on external rewards and punishments to motivate performance.
C) The former relies on monitoring workers and imposing explicit penalties for shirking while the latter relies on external rewards and punishments to motivate performance.
D) The former relies on monitoring workers and imposing explicit penalties for shirking while the latter relies on appeals to an agent's desire to do the best work that he/she can.

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