Economic and Game Theory
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(w+g)(1-p) + (bp) <w or w>g(1-p)/p +b
comes from the guide itself. This question appeared as a sample exercise question though (without solutions): Review the min cost implementation problem for efficiency wage and use this model to discuss whether efficiency wage would be higher/lower than in the standard model is employees dislike monitoring.
This participant constraint:
w > b - D(p)
appeared as a "hint" for us to attempt the question with. Actually, I'm curious as to whether there might be a typo error. Perhaps the equation should be
w > b + D(p) ?
As I see it, if I rearrange the equation, it will then be:
w - D(p) > b
which means that the "net wages" after adjustment for discomfort, should be greater than the benefit the worker can get if he's fired, so that he would remain in the job, and bear with the discomfort that comes along with monitoring. Do I make sense here? :)