Question 3

(a) Why are contracts between firms and their employees incomplete? If piece-rates solve the issue why are they not used more widely?

(b) Firm are generally unable to directly measure the level of effort of their workers. How do firms overcome this issue?

(c) Numerous pharmaceutical companies are currently developing vaccines for COVID-19. Governments around the world, including Australia, have entered into contracts with these companies for the prospective supply of these vaccines. Explain who is the principal, who is the agent, and what aspects of their interaction are of interest to each and are not covered by a complete contract