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Lecture Notes 14- Markets and Moral Sentiments

Suppose ability and effort could be separated suppose

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Unformatted text preview: nce put in incentives! ! ! Ability vs. Effort! ! *suppose ability and effort could be separated! ! • • • • Suppose that the individual output in a firm could be separated so that:! x1+x2+x3+x4+etc…! X=A+E (ability+Effort)! Suppose the compensation is:! Econ 101 ! ! • • • • Wage = Effort + (Average Ability)! Will this dilute incentives? ! Wait, are we assuming effort and ability are all equal amongst individuals?! In this scheme, an industrious idiot will make more than lazy genius! Day-care experiment! • 10 day care centres observed ver 20 weeks! • fines introduced for parent who picked up their kids late! • first 4 weeks : no ...
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