What is the role of the "informativeness principle" in designing a compensation package for an individual in a corporate environment?
What will be an ideal response?
The informativeness principle states that it is optimal to include in the compensation contract all indicators that provide additional information about the employee's effort, assuming the measures are available at low cost. This principle hinges on the desirability of separating out true effort from random elements that affect employees' output. In a corporate environment, many individuals or units may have specific knowledge that may be brought to bear on another's performance. If this knowledge can be obtained at low cost, then in theory it should be used in determining compensation. One possibility is to use information about similar individuals' output in a relative performance contract. Another possibility is to use peer evaluation. In addition, it may be worthwhile for the firm to spend money to develop more precise measures of performance so long as the improved measurements can motivate significantly more effort.
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The goal of the World Bank is to
A) sell the government securities of member nations on the open market. B) supervise exchange rate stability. C) help finance economic development. D) supervise the activities of the central banks of member nations.
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss
A) loss of $6,000 B) profit of $30,000 C) profit of $6,000 D) There is insufficient information to answer the question.