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The production function for a process is x = 16(e1 + e2) if e1 and e2 are both greater than zero, if either equal zero, then x = 0. The effort exerted by team member i is ei and x is measured in dollars. The sharing rule is that they split the yield of their joint effort in half. Team member i 's utility is given by ui = mi - 2e2, where m is income. The marginal disutility of effort for team member i is 4ei .
(a) Find the efficient effort levels, production, and utility levels.
(b) What is the outcome associated with their partnership (effort and income levels)?
(c) What is the maximum amount that these two team members would be willing to pay someone to monitor their effort levels? Assume that the monitor has a big enough whip to completely stop any shirking.
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