The informativeness principle tells us that:
A)information is overrated because employees can always lie about their performance,and detecting is costly and counter-productive.
B)one must use as much information as possible to develop compensation contracts,even if the cost of obtaining the information is unreasonable.
C)one must only use information that is necessary to develop compensation contracts,as long as the cost of obtaining the information is reasonable.
D)you must use as much information as possible to develop compensation contracts,as long as the cost of obtaining the information is reasonable.

Question

Quizplus · Accepted Answer

The informativeness principle states that one should use as much information as possible to develop compensation contracts, as long as the cost of obtaining the information is reasonable. This means that obtaining as much relevant information as possible is important for creating effective compensation contracts, but it is also important to consider the cost of obtaining that information. Therefore, choice D is the best answer.

The Informativeness Principle Tells Us That