1. Imagine a firm called Speedy Shuttle Service that transports passengers back and forth between the Halifax airport and various points in the HRM. Drivers for this shuttle service are paid per trip that they make, regardless of how long the trip takes.

1. Are the incentives of the driver distorted in a way that may be detrimental to the firm? Explain why or why not. (2 points)

1. Would the pay that these drivers receive be subject to any uncontrollable risks? If so explain what they are, and also explain the implications of this uncontrollable risk for the rate of pay per trip that drivers would be willing to accept. (3 points)

1. Now imagine that drivers are paid per minute that they spend driving passengers. Are the incentives of a driver distorted in this case? Explain why or why not. (2 points)

1. Is the driver's pay subject to uncontrollable risk? Is the uncontrollable risk as high as it would be if they were paid per trip? (3 points)

1. Imagine that drivers are paid a flat rate per hour, regardless of whether they are driving passengers. Are the incentives of a driver distorted in this case? Explain why or why not. (3 points)

1. Is the driver's pay subject to uncontrollable risk? Explain why or why not. (2 points)

1. Out of the 3 methods of paying drivers that have been outlined here, explain which one you believe is the best payment scheme that Speedy Shuttle Service could offer. (4 points)