Let us compare the complete contracting case and the incomplete contract case, w

Question

Let us compare the complete contracting case and the incomplete contract case, with reference to employment contracts. - In the complete contract case, the employer is constrained by the employee's Choose case, however, he has to consider the employee's Choose. - The outcome under complete contracts is Choose. Under complete contracts, the employees Choose . In the incomplete contract best fun fall back pes, best re.func,to ·The outcome under incomplete contracts is choose. | earn economic rents. Under incomplete contracts, employees ,mayorm not, don't Choose , earn economic rents. are Select the statements about the Solow Condition that are true: Select one or more: a. The Solow condition implies that in the Nash equilibrium the slope of the iso-profit curve must be equal to the slope of the worker's iso-value curve b. The Solow condition implies that the slope of the iso-profit line must be equal to the slope of the employee's best response function. O c. It implies that, in equilibrium, a 196 increase in the wage must bring a 10% increase in workers' effort. d. It is derived from the principle that the employer maximizes (ew) subjectto the employee's best response function. O e. It implies that, in equilibrium, a 1% increase in the wage must bring a 1% increase in workers' effort. f. The Solow condition can be equivalently written as

Explanation / Answer

In the complete contract case, the employer is constrained by the employee's best response function. In the incomplete contract case, however , he has to consider the employee's fall back position.

The outcome under complete contracts is Pareto efficient . The outcome under incomplete contracts is Pareto inefficient.

Under complete contracts ,the employees may not earn economic rents .Under incomplete contracts, employees may earn economic rents.

For solow conditions , option(b), (c) , (d) are true.

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