A firm that makes car parts wants to adopt pay schemes that will best motivate its various workers to be productive and they hire you as a consultant.
a. The firm is able to accurately measure the productivity of individual workers who make windshield wipers. What would happen to the productivity of the firm's windshield wiper division if it started paying per windshield wiper? Why?
b. Seats are assembled by teams of workers. The firm can accurately observe the output of each team, but not individual workers within a team. What problems might the firm encounter if output is based on team productivity? How might your answer vary with the size or composition of the teams?