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December 9, 2020

A.Discuss insights from the lecture by considering the following

General Questions

A.Discuss insights from the lecture by considering the following aspects (without making use of tables or formula):1. Explain the main issue of moral hazard.2. Discuss several factors that make it either impossible or unwarranted to fully internalize the consequences of actions.3. Describe and discuss the main factors that influence the trade-off between risk sharing and incentives.4. In which sense could ethical behavior solve or at least mitigate the moral hazard problem? Explain what you mean by ethical behavior.5. Discuss insights from prospect theory that may influence the consequences of bonus contracts.6. Discuss insights from experimental economics that may influence the consequences of bonus contracts.B.Apply the reasoning from part A) to your own experience.C. Discuss the strength and weaknesses of the economic approach to incentives from your subjective point of view.

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