The Pay-off from Shirking Diagram

An employee has a job with a total planning horizon of 50 weeks. The weekly wage is $1,000. If the employee decides to shirk, it is certain they will be caught and dismissed after 10 weeks. Upon dismissal, the employee's only alternative is a job that pays a weekly wage of $400 for the remainder of the horizon. Calculate the employee's total monetary payoff over the entire 50-week period if they choose to shirk.

Calculating the Shirking Period

Impact of Monitoring on Shirking Payoff

Consider a worker who is paid a weekly wage. If this worker chooses to shirk, they are guaranteed to be caught and dismissed after a specific number of weeks, at which point they will take a lower-paying job for the remainder of a pre-determined employment horizon. True or False: The overall difference in total earnings between a worker who shirks and a worker who never shirks is independent of the total length of this employment horizon.

Deriving the Financial Cost of Shirking

Evaluating the Shirking Payoff Model

A worker's total monetary payoff from choosing to shirk is calculated based on their wage before being caught, the time until they are caught, their alternative wage after being caught, and their total employment horizon. Match each of the following workplace or economic scenarios to its most direct effect on the calculation of a shirking worker's total payoff.

A worker has a contract for a total of 40 weeks at a wage of $500 per week. Their alternative job prospect after dismissal pays $200 per week. If this worker chooses to shirk and is certain to be caught after 10 weeks, their total monetary payoff over the 40-week period is $11,000. If, due to looser supervision, the time until they are caught doubles to 20 weeks, their new total payoff will increase by $____.

An employee's total earnings over a defined period are calculated in two parts if they choose to underperform ('shirk') and are eventually dismissed. First, they earn their regular wage until they are caught. Second, they earn a lower, alternative wage for the remainder of the period. Consider a worker with a 52-week total employment horizon, a regular weekly wage of $1,200, and an alternative weekly wage of $500. It is certain they will be caught and dismissed after 10 weeks of shirking. Which of the following independent changes would result in the largest increase to this worker's total payoff over the 52-week horizon?

Critiquing a Financial Decision