Incentive Design for Remote Workers
Drawing an analogy from the credit market, where a lender often requires a borrower to invest their own money (equity) into a project, propose a specific compensation strategy for the software company described below to address its productivity problem. Explain the parallel between the lender's requirement and your proposed strategy, focusing on how both create an incentive for the agent (borrower/employee) to act in the principal's (lender/employer) interest.
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A bank requires a startup founder to personally invest 25% of the total required funding before it will provide a loan for the remaining 75%. In a different situation, a company pays its remote employees a wage that is 20% higher than the market average for similar roles. What underlying issue do both of these strategies primarily address?
Incentive Design for Remote Workers
Comparing Incentive Mechanisms in Different Markets
Match each role or concept from the credit market with its direct analogue in the labor market, based on the principal-agent framework for addressing moral hazard.
Identifying Common Incentive Mechanisms
Requiring a borrower to provide collateral for a loan and paying an employee a wage higher than the market average are both strategies primarily designed to solve the problem of adverse selection by revealing the agent's hidden characteristics before a contract is signed.
Evaluating Incentive Structures
Evaluating Incentive Structures
Analysis of Incentive Misalignment
Designing an Incentive Scheme for Scholarship Recipients
Match each role or concept from the credit market with its direct analogue in the labor market, based on the principal-agent framework for addressing moral hazard.