Personnel Economics

Assignment 3

ME1: Personnel Economics

                                              Name: SHUO CHEN  

                                     Student ID: 14715575

1. Evaluating performance increases Simone’s incentive to act in his own best interest rather than those of Jana, known as the agent-principal relationship.

False, Evaluating performance increase Incentives problems that when an agent (employee) acts on behalf of a principal (the firm’s owners), they may has objectives that improve their own benefit but are different than the principal’s objectives

2. The trade off between controllable and uncontrollable risk is the increase in incentives of manipulation.

True, because with more uncontrollable risk employer would more likely to choose a narrower performance measure and this increase workers’ incentive of manipulation.

3. A broader performance scheme is less risky, because Simone has more factors (which might influence firm’s value) under control.

False,Broader and more inclusive measures tend to include not only more that is controllable,but also more that is uncontrollable, means that broader measures are riskier as they have more measurement error.

1. Jana’s performance should only be valued by the number of luxury goods sold, because the more luxury goods she sells to the retailers, the higher her performance.

False, because this narrow quantitative performance measurement will cause Distortion and Manipulation

5. Manipulation is more likely to occur with a broader performance measure, because workers use specific knowledge strategically to improve performance.

False,manipulation is more likely to occur with a narrower performance measure. Because a narrower measure reflects fewer parts of the employee’s job, altering behavior along only one dimension of work may have a large effect on measured performance

6. Performance on piece-rate is an example of distortion.

True, Piece rate cause employees to emphasize quantity too much and others too little

1. Vicious circle is a consequence of distortion, because the quality of a performance metric may systematically degrade over time.

False, Vicious circle is a consequence of manipulation: quality of a performance metric may systematically degrade over time once it is used for incentive purposes

1. The consequence of vicious circle is the reduction of value of a performance metric once correlated with firm value.

True, after the introduction of incentives, workers have incentive to manipulate the metric thus will reduces correlation with firm value.

1. How is the dependent variable, Labor Participation, measured?

 The labor participation measures whether a working-age person in an economy are employed or are unemployed but looking for a job, in this case it is correlated to people’s education,experience,age and so on