Consider a firm using an efficient wage we to pay each employee it hires. The firm assumes each employee’s benefit from engaging into moral hazard on the job is B. The firm’s marginal monitoring cost per employee is M'(delta)=a*delta delta is the probability of finding an employee engaging into moral hazard on the job and a>0 is a constant. Each employee can find an outside job in a perfectly competitive labour market where the equilibrium wage is w*. For each employee, the firm minimizes the sum of its monitoring cost and wage subject to satisfying the employee’s incentive compatibility constraint. Because of the introduction of a new surveillance technology, the marginal monitoring cost per employee decreases to b*delta where b is a constant such that a>b>0. Determine how the firm should adjust its wage

a. Increase
b. Decrease
c, Keep constant

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