Question

Employers can try to overcome the moral-hazard problem involving their employees by:

A. better monitoring their employees' work efforts
B. paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities
C. paying their employees more often
D. requiring their employees to take a pre-employment work effort test.

Answer 1

Answer:

Option D             

Explanation:

In simple words, moral hazard refers to the situation when an individual do not act with full responsibility due to the fact that any loss from their behavior will be borne by some third party.

Thus, by assessing the employees before employment by a test will help to decide the employer if the individual is worthy of the job or not. Thus, efficient employees will be selected and less mistakes will occur.