Exam 22: Managing Incentives

One way a manager can reduce an agent's risk is to tie:

Agricultural workers are often paid piece rate.

In banking and finance, executives often have an incentive to take too ______ risks.

How can tournaments be structured to eliminate ability risk?

Although workers might earn more money with a piece rate system, they might also prefer a fixed salary if their productivity is too dependent on factors outside their control.

The British government has created a "nudge unit" to try to find small nudges to get people to do things such as pay their taxes on time and sign up for organ donation.

An example of an intrinsic reward is a cash bonus.

Use the following to answer questions: Figure: Weekly Pay -(Figure: Weekly Pay) Firms A and B are radio stations that hire salespeople to sell advertising slots. The firms' compensation schemes appear in the figure. Which of the following statements is TRUE? I. A worker that could sell seven ads per week would want to work for Firm A. II. A worker that could sell five ads per week would be willing to work for either firm. III. A worker that could sell only three ads per week would want to work for Firm B.

The concern about private prisons is that:

The establishment of a piece rate system can lead to increased productivity and higher quality work if: I. the piece rate is considerably higher than existing wages. II. the workers are held responsible for the jobs that they personally complete. III. there is a reliable measure of quality control.

Piece rate compensation schemes do not work well when:

To change behavior, incentives must be extrinsic.

Tournaments work best when it is hard to determine worker effort and there are random external forces that affect worker performance.

Why is government bureaucracy less likely to cut costs than private companies?

Monetary rewards are not effective when they are supported by intrinsic motivation and measures of social status.

When executive pay is based on company stock price, uncontrollable factors:

An example of piece rate work is paying workers:

When designing an incentive scheme for workers, how can management insure that the incentive scheme actually results in workers working harder?

If a worker's output depends on external factors other than just the level of effort of the worker, then:

There are three big lessons when designing incentive schemes. Which of the lessons applies to each of the following cases? A. In the Philippines, Cebu Provincial Detention and Rehabilitation Centre, a prison, tries to instill camaraderie and comradeship, and establish physical fitness among its prisoners by teaching them dance routines, such as Michael Jackson routines, as part of their daily exercise. B. The manager of a transportation garage for the school district bus system is told to reduce the maintenance costs for the district's bus fleet over the next three months or risk losing his job. He therefore repairs only the worst problems knowing that performing minor repairs now will save money six months down the road. C. In Bangladesh, the Grameen Bank offers small loans to borrowers who have no collateral. The loans are offered in sequential order to small groups of borrowers. Once the first borrower has established a repayment schedule, the second borrower gets the loan, and so on. It is in the group's best interest to maintain a good loan repayment schedule so that they are eligible for bigger loans as time progresses.