Question

One point each; absolute word limits; any response exceeding limit will be scored zero

You are manager of Dave’s FunTime Bar and Grill. You are hiring new bartenders and servers

1. Who is the principal? [limit 1 word]

2. Who are the agents? [limit 2 words]

3.  Why would you worry about adverse selection when hiring new bartenders and servers? [limit 15 words]

4. What could you do to reduce adverse selection when hiring these employees? [limit 15 words]

5. Why would you worry about moral hazard after hiring these new bartenders and servers? [limit 15 words]

6. What could you do to prevent moral hazard after hiring these employees? [limit 15 words

Answer 1

Answer 1:

Manager

Answer 2:

Bartenders, servers.

Answer 3:

They may have more information about the service than the principal, which can be disadvantageous.

Answer 4:

The firm can conduct proper screenings and know about his background before the final appointment.

Answer 5:

They may indulge in riskier transactions, knowing that the damages shall be borne by manager.

Answer 6:

The firm should provide long term benefits and incentives to the bartenders and servers.