Which of the following practices would indicate that an employer is trying to overcome a moral-hazard problem with his employees?
A) The employer pays his workers wages that are unusually high for the industry and region.
B) The employer has voluntarily removed video cameras from the factory floor.
C) The employer has discontinued the practice of giving his employees' year-end bonuses.
D) Both A and B are correct.

Question

Quizplus · Accepted Answer

Offering wages that are unusually high for the industry and region can incentivize employees to stay with the company and perform well to maintain their high salaries, reducing the likelihood of engaging in risky and fraudulent behavior. B is incorrect because removing video cameras could increase the likelihood of employees engaging in risky or fraudulent behavior, thereby exacerbating the moral-hazard problem. C is incorrect because removing bonuses could actually exacerbate the moral-hazard problem by reducing the incentive for employees to work hard and perform well.

Which of the Following Practices Would Indicate That an Employer