Which of the following is not a method firms use to avoid the moral hazard problem in the employment relationship ?
Correct answer: B. They buy life insurance on their workers
- A. They pay employees with delayed compensation such as a year-end bonus
- B. They buy life insurance on their workers
- C. They pay above equilibrium wages
- D. They put hidden video cameras in the workplace
Explanation
Delayed pay, efficiency wages, and workplace monitoring discourage shirking by making hidden actions costly. Buying life insurance on employees does not directly reduce their moral hazard in performing the job.
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