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5 pages/≈1375 words
Mathematics & Economics
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Economics (Essay Sample)


The task was to respond to questions on labor discipline model. The sample is in MLA format with no references since the client requested for 0 references.

Question 1
According to the labor discipline model, there is an assumption that the best response in terms of the efforts of the workers is known by the employers. In this case, e (w, m, z) whereby, w is the given wage rate, m is the monitoring level and z is the option of the exogenous fall back.
It is worth mentioning that, at the beginning of each period, the selection and announcement by the employer is carried out. The termination probability is determined as t (e, m) e (0, 1) com t e 0. The wage rate is given as w and each hour monitoring level given by m.
The utility of the workers is given by the function u = u (w, e) whereby u n > 0 e u e < 0. In this case, the worker is able to vary e, so that the present value of the expected utility of that worker is maximized. If the time preference for the individual worker Is given at the rate of I, then the workers present utility can be determined as follows
V = u (w, e) + [1 – t (e)] v + t (e) z} 1 + 1 + I
Characteristics of the model
There is the transparency of the transactions, which means that the exchange of goods and services are easily observed.
The contract that specifies the characteristics of these complete contracts are freely enforceable without incurring any cost.
Contracts are subjected to the exogenous claim enforcement. This means that transgressions in the contracts are easily detected and redressed.
Any transaction whose terms has been disputed can be specified in such a contract in which there needs to be a mutual agreement.
There are agency problems created by this model like more costs arising from the opaqueness of the aspects of transactions that are not expressed in the contract. These results into costs that the firm has to incur given that the contract had already been entered into. These costs are implied in the contract.
The effort is expensive to measure and observe, at the management expectation level, the effort is costly to the worker although subjectively. It is worth noting also that the transgressions are not readily admissible in the courts of law, therefore, all the efforts geared towards seeking justice on the basis of transgressions all are wasted. Any costs incurred in the process are incurred by the firm.
Question 2
Given the workers’ utility u = u (a, w, e) whereby a represents the work place amenities and u a > 0
V = u (w, e) + [1 – t (e)] v + t (e) z} 1 + 1 + I
Given that utility a = 0, then u being a function a, w and e, it means then that;
a=0, w =0 and e =0. It is worth noting ,however, that work place amenity cannot be less than zero.
e is the level of effort that is being expended by the firm, it is a cost to the firm, therefore, there is a need that it is equal to zero. This ensures that the costs of the firm are minimized
Therefore, v w =o, v e =0, v a= 0
b) The profit and derivative of x are assigned the positives. Given that the costs have been determined to be at the minimum, the profit of the firm is a positive value.
c) It is possible to raise the amenities level at the place of work and not affect the employer if the worker’s efficiency and productivity can b...
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