<P> Fehr et al. state that "Our preferred interpretation of firms' wage - setting behavior is that firms voluntarily paid job rents to elicit non-minimum effort levels ." Although excess supply of labour created enormous competition among workers, firms did not take advantage . In the long run, instead of being governed by competitive forces, firms' wage offers were solely governed by reciprocity considerations because the payment of non-competitive wages generated higher profits . Thus, both firms and workers can be better off when they rely on stable reciprocal interactions . </P> <P> That reciprocal behavior generates efficiency gains has been confirmed by several other papers e.g. Berg, Dickhaut and McCabe (1995) - even under conditions of double anonymity and where actors know even the experimenter cannot observe individual behaviour, reciprocal interactions and efficiency gains are frequent . Fehr, Gächter and Kirchsteiger (1996, 1997) show that reciprocal interactions generate substantial efficiency gains . However the efficiency - enhancing role of reciprocity is, in general, associated with serious behavioural deviations from competitive equilibrium predictions . To counter a possible criticism of such theories, Fehr and Tougareva (1995) showed these reciprocal exchanges (efficiency - enhancing) are independent of the stakes involved (they compared outcomes with stakes worth a week's income with stakes worth 3 months' income, and found no difference). </P> <P> As one counter to over-enthusiasm for efficiency wage models, Leonard (1987) finds little support for either shirking or turnover efficiency wage models, by testing their predictions for large and persistent wage differentials . The shirking version assumes a trade - off between self - supervision and external supervision, while the turnover version assumes turnover is costly to the firm . Variation across firms in the cost of monitoring / shirking or turnover then is hypothesized to account for wage variations across firms for homogeneous workers . But Leonard finds that wages for narrowly defined occupations within one sector of one state are widely dispersed, suggesting other factors may be at work . </P> <P> Paul Krugman explains how the efficiency wage theory comes into play in a real society . The productivity E (w) (\ displaystyle E (w)) of individual workers is a function of their wage w (\ displaystyle w), and the total productivity is the sum of the individual productivity . Accordingly, the sales V (\ displaystyle V) of the firm to which the workers belong become a function of both employment L (\ displaystyle L) and the individual productivity . The firm's profit P (\ displaystyle P) is </P>

Which of the following are reasons that efficiency wages might mitigate moral​ hazard