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Designing an Employment Contract to Mitigate Hidden Actions
A technology company is hiring a remote software developer for a critical, long-term project. The company cannot directly observe the developer's day-to-day effort or the specific choices they make while coding. This creates a challenge for ensuring the project is completed efficiently and to a high standard. Propose two distinct contractual or incentive-based strategies the company could implement to address this challenge. For each strategy, explain the economic reasoning for why it would encourage the developer to act in the company's best interest.
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Introduction to Microeconomics Course
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