Both leisure and higher income enter a
person's utility function.5 Hence, each
person should adjust his work and realized
reward so as to equate the marginal rate of
substitution between leisure and production
of real output to his marginal rate of
substitution in consumption. That is, he
would adjust his rate of work to bring his
demand prices of leisure and output to
equality with their true costs. However,
with detection, policing, monitoring, measuring
or metering costs, each person will
be induced to take more leisure, because
the effect of relaxing on his realized (reward)
rate of substitution between output
and leisure will be less than the effect on
the true rate of substitution. His realized
cost of leisure will fall more than the true
cost of leisure, so he "buys" more leisure
(i.e., more nonpecuniary reward).