Designing a Contract for Innovation
A renewable energy firm hires a materials scientist to develop a groundbreaking, high-efficiency solar panel. The project's success is uncertain, and the day-to-day effort and ingenuity of the scientist are difficult for the firm to monitor. A simple employment contract offering a fixed monthly salary for a set number of work hours is proposed.
Your task is to:
- Explain why this simple, time-based contract is 'incomplete' and why it might lead to a result that is not ideal for the firm.
- Propose and justify two specific, enforceable clauses that could be added to the contract to make it more complete. For each proposed clause, explain how it helps align the scientist's incentives with the firm's goal of achieving a significant innovation.
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Sociology
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Economics
Economy
Introduction to Microeconomics Course
CORE Econ
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