Reference no: EM131499369

1. Principal/agent, rent seeking

a. Imagine you own a small store, and decide to hire an hourly employee to help you run it. What are two incentives the employee has to do what you would like them to do? What are two incentives to not do what you want?

b. Now imagine you decide to hire a manager to run the store so you don't have to be there all the time. Managers are paid a salary plus bonuses based on how the store is doing. What are two incentives the manager has to do what you want him to do, and two incentives to not do that?

c. How does hiring the manager change the employees' incentives? Name two changes in both directions, relative to you, the principle of the firm.

d. Define "rent seeking", and give an example of rent seeking behavior that might occur in this owner-manager-employees situation.

2. Incentives, voting types

a. What are the different types of voter motivations for actually turning out to vote? (List and define them.)

b. Which are instrumental, and which are expressive (or possibly both)? Why?

c. How does the probability of being decisive change people's choices in the voting booth, even if their motivations remain the same?

i. Give an example.

Apply the voter motivations to market purchases. For each motivation give an example of a market choice that fits that model.