Reference no: EM133574021

Question: A principal hires an agent to manage an HR department and prefers that the agent works diligently. The agent prefers not to work diligently and incurs a personal cost of $100 for doing so. Alternatively, the agent can slack off at no cost. The principal cannot observe whether the agent works diligently. The firm plants to conduct an employee satisfaction survey. When the agent works diligently, the employee satisfaction score is "high" with probability 0.7 and "low" with probability 0.3. When the agent slacks off, the employee satisfaction score is "high" with probability 0.3 and is "low" with probability 0.7. Assume that the agent receives a bonus of $200 when the employee satisfaction score is high and $0 else. What is the agent's utility when she works diligently?