Let income be y, and measured in dollars

Reference no: EM13979102

Let income be Y, and measured in dollars. A doctor obtains utility of4Y1/2 from exerting low effort, and 2Y1/2 from exerting high effort. Her reservation utility is 120utils. Patients and the physician's employers can only observe health outcomes. If a doctor applieshigh effort, there is an 80% chance their patient will survive, and a 20% chance they will die. If adoctor applies low effort, there is a 40% chance the patient will survive, and a 60% chance theywill die. Calculate a combination of fixed and conditional payments that will induce the doctorto treat a patient and apply high effort (for example, '$100 up front and an extra $250 if the patientsurvives'). Show your work.

Reference no: EM13979102

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