Find level of effort that maximizes agents expected utility

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Reference no: EM131960733

Problem

1. During the 1990s, a consortium of private health insurance firms began measuring their own quality. Why do you believe this industry moved to create quality measures?

2. What strategies can college students employ in order to "game" their academic report cards? In light of this gaming, how can prospective employers and graduate schools determine the true academic performance of undergraduates?

3. Consider the following principal-agent model: Output is given by y = 10e2 + e with E(e) = 10. Cost of effort is given by C(e) = 100e. The agent's utility is equal to his/her payment minus the cost of effort.

a) Find the level of effort that maximizes the agent's expected utility if the agent is paid a fixed salary, s.

b) Find the level of effort that maximizes the agent's expected utility if the agent is paid a fixed payment, a, plus a share b of output.

Reference no: EM131960733

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