5. In our discussion of group bonuses in Figure 24.2, we said that “the bonus has to be large enough to ensure that each worker prefers to provide the efficient effort level, rather than just ‘settling for’ base pay, a.” How big is this, exactly? To check whether the bonus drawn in Figure 24.2 is big enough, add some indifference curves into the figure, just as we did in our analysis of Safelite’s PPP plan in Figure 8.1. Show that the bonus in the figure is big enough to induce efficient effort if the highest indifference curve attainable by “settling” for base pay passes below the point (M, a + B) in Figure 24.2.

Explain. How might your answer differ for high- versus low-ability workers?