Suppose that workers\' effort in a particular industry can be monitored costless

Question

Suppose that workers' effort in a particular industry can be monitored costlessly and exactly, so that enforceable labor contracts can be written, that specify both the wage (w) and the effort level (e). A worker who is not employed gets zero utility. (a) Select the correct statements, with reference to this imaginary industry of complete contracts. Select one or more: a. Employers will be able to set any wage and effort level they choose. So they will offer a contract that requires the maximum possible effort, for a wage slightly higher than 0. O b. The worker's fallback position is z-0. O c. Employers will still have to take into account the worker's participation constraint. o d. Employers will not get any rent. O e. The equilibrium labor contract in this industry will be Pareto-efficient. Of. Employers will still have to take into account the worker's incentive-compatibility constraint. g. Employers will offer a contract that gives to the employee a utility slightly higher than zero. The utility from the wage offered will be (approximately) just sufficient to compensate the disutility of effort. O h. Workers will not get any rent.

Explanation / Answer

Suppose that workers. effort in a particular industry can be monitored costlessly and exactly, enforceable labor contracts can be written, that specify both the the wage (w) and the effort level (e) worker who is not employed gets zero utility.

(a) The correct options are: h, a, b

(b) The correct options are: b, h, f, d

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