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Tournament theory is based on the proposition that


A) It is absolute rather than relative performance that matters
B) There is a linear relationship between pay and organisational level
C) It is the spread between the top and next highest salary that matters
D) Internal labour markets with promotion from within is an alternative approach.

E) A) and B)
F) A) and C)

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C

Piece work will maximise incentives


A) If it is based on groups rather than individuals
B) If it helps to attract and retain more productive individuals
C) Regardless of the characteristics of the firm
D) If shoddy work can be avoided.

E) None of the above
F) A) and C)

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B , D

Labour managed firms


A) Will attempt to maximise profits
B) Are Pareto optimal if perfect competition prevails
C) Avoid the problem of risk
D) Require free and costless entry of firms if perverse effects are to be avoided.

E) All of the above
F) B) and D)

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Piece rates will be preferred to time rates provided


A) It is easy to measure output
B) The risk of overpayment is limited
C) The supply of effort is elastic
D) All of these apply.

E) All of the above
F) None of the above

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Workers in the private sector should not be paid more than those in the public sector because of productivity considerations


A) Since it is difficult to measure performance in the public sector
B) Since otherwise it will be difficult to recruit in the public sector
C) Private sector workers have more capital to work with
D) It is necessary for there to be a 'going rate' of pay to avoid distortionary output losses.

E) A) and B)
F) None of the above

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Profit sharing can


A) Guarantee workers against income risk
B) Reduce the level of unemployment unless c is absent
C) Force up the wage level
D) Encourage all employees to increase effort regardless of the size of firm.

E) A) and D)
F) A) and C)

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The optimal length of workweek occurs when


A) The worker becomes too tired to work at maximum efficiency
B) The probability of accidents is minimised
C) The marginal utility of wage income equals the marginal disutility of work
D) There is uniformity of hours across industries.

E) B) and D)
F) C) and D)

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C

A principal-agent problem arises when


A) It is not possible to monitor performance effectively
B) There is a lack of trust between the principal and the agent
C) There is a moral hazard problem
D) The agent possesses more information about the job than the principal.

E) A) and D)
F) B) and C)

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