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Asymmetric information and the credit market

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Asymmetric Information and the Credit Market. Sean is a rice farmer. To grow rice, he must buy seeds, which cost $100. Rice production is risky. If he gets a GOOD harvest, Sean earns revenues of $500. If, instead, he has a BAD harvest his revenues are $0. After Sean plants the seeds, he must decide to either WORK HARD or BE LAZY. If he chooses to WORK HARD, he will have a GOOD harvest with 80% probability. If he chooses to BE LAZY, he only has a 20% probability of having a GOOD harvest.

Assume that Sean has $100 in wealth, so he can buy the seeds and plant rice without a loan.

What is the expected value of Sean's consumption if he chooses to WORK HARD?

Reference no: EM132263157

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