Consider the following example. A risk-neutral worker can choose high or low effort. The manager cannot observe the worker's action , but the manager can observe the realized revenue for the rm (either $100 or $200). The probability of each revenue depends on the worker's effort: Low effort: cost of effort : $0 probability of low revenue ($100) : 75% probability of high revenue ($200) : 25% gh effort: cost of effort : $11 probability of low revenue ($100) : 25% probability of high revenue ($200) : 75% The manager offers to give the worker a flat wage of $10 and a bonus of $20 if revenue is high. Given this payment scheme. the worker will put in v effort. The rm's expected prot is $ v . The rm is considering an investment that would increase worker morale. By making work more enjoyable, the program would reduce the worker's cost of effort from $11 to $9. If it costs the rm $20 to implement this program. the rm's expected profit if they implement the program is $ v . The rm v implement the program