The Labour Discipline Model as an Example of an External Effect
The labour discipline model illustrates an externality within the employer-employee relationship. A worker's effort generates a positive external benefit for the employer's profit. However, because the employer cannot perfectly monitor this effort (asymmetric information), it cannot be enforced in the employment contract. Consequently, the worker does not take the full benefit to the employer into account when deciding how hard to work. This specific type of market failure results in a labour market equilibrium with involuntary unemployment.
0
1
Tags
Social Science
Empirical Science
Science
Economics
Economy
CORE Econ
Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
Introduction to Microeconomics Course
Related
The Labour Discipline Model as an Example of an External Effect
A homeowner hires a landscaping company to maintain their garden. The contract specifies a weekly visit and tasks like mowing the lawn and trimming hedges. However, the contract cannot perfectly detail or monitor the 'thoroughness' of weeding or the 'care' taken to prune delicate plants. The company's workers, to save time, sometimes do a superficial job of weeding, leaving roots behind that cause problems later. Which statement best analyzes the economic reason for the homeowner's future gardening problems?
Historical Land Patterns and Infrastructure
Analyzing Contractual Gaps in a Tech Project
Analysis of a Used Car Transaction
A restaurant owner's contract with a new chef specifies salary and working hours. If this contract could also perfectly measure, verify, and reward the exact level of 'culinary creativity' the chef applies, then any resulting boost to the restaurant's profits from the chef's highly creative dishes would be classified as a positive externality.
Match each economic term with the scenario that best illustrates it. Each scenario involves a transaction where the actions of one party are not fully observable by the other.
Outsourced Customer Support Dilemma
A tech startup hires a freelance programmer to develop a mobile application. The contract specifies the required features and a delivery deadline. However, the 'quality' of the underlying codeāits efficiency, scalability, and ease of future maintenanceāis difficult for the non-technical startup owner to assess and cannot be fully detailed in the contract. The programmer can choose to write 'quick and dirty' code to finish faster or take more time to write high-quality code. Which of the following payment structures would be most effective at encouraging the programmer to write high-quality code, thereby reducing future maintenance costs for the startup?
Designing a Scenario of Contractual Failure
The Car Insurance Conundrum
Learn After
Effort and Incentives at a Software Firm
Within the framework of the relationship between a firm and its employee, which statement best explains why the employee's decision on how hard to work generates an external effect for the firm?
Evaluating Modern Workflows through a Classical Lens
The Uncontracted Benefit of Worker Effort
The Uncontracted Benefit of Worker Effort
In a principal-agent scenario between an employer and an employee, if the employer could perfectly and costlessly observe the employee's level of effort, the positive external effect of that effort on the firm's profit would be eliminated.
The Market-Level Consequence of Uncontracted Effort
A manufacturing firm is concerned that its employees, paid a fixed hourly wage, are not working as hard as they could. To address this, the firm switches to a piece-rate system where workers are paid for each unit they produce, and the quality of each unit is easily verifiable. From an economic perspective, why is this change in compensation likely to resolve the problem of the worker's effort creating an uncompensated benefit for the firm?
Match each economic concept to its specific role within the model of the employer-employee relationship where worker effort is not perfectly observable.
Comparing Compensation Strategies