An efficient allocation of risk among employees and owners must:
A)take into account that performance-based incentives are the sole important component of an employee's salary.
B)take into account that attitudes toward risk differ among different people.
C)recognize that employees have full control over their output.
D)recognize that pooling of risks is never appropriate.

Question

Quizplus · Accepted Answer

Attitudes towards risk differ among different people, therefore an allocation of risk that takes this into account would be best. Option A is incorrect because performance-based incentives are not the sole component of an employee's salary; there may be other factors such as benefits, overtime pay etc. Option C is incorrect because not all employees have full control over their output due to external factors such as resources provided by the company. Option D is incorrect because pooling of risks can be appropriate in some cases such as insurance.

An Efficient Allocation of Risk Among Employees and Owners Must