Effect of the Profit-Sharing Parameter on the Selection of a Risky Project Many incentive contracts reward people with bonuses if performance exceeds a target level or bogey but do not penalize performance that falls below the target. That is, the incentive scheme is

Required (I ) What are the likely behavioral consequences of this type of reward system?
(2) What modifications would you make to this type of reward system, and why? Alternatively, why would you leave it as it is?

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- Wage Wage + a*(performance target) if performance> target if performance target where a is number between 0 and 1.