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The local government has hired someone to undertake a public project. If the project fails, it will lose $20,000. If it succeeds, the project will earn $100,000. The employee can choose to ‘‘work'' or to ‘‘shirk.'' If she shirks, the project will fail for sure. If she works, the project will succeed half of the time but will still fail half of the time. The employee's utility is $10,000 lower if she works than if she shirks. In addition the employee could earn $10,000 in another job (where she would shirk). The government is choosing whether to pay the employee a flat wage of $20,000 (no matter how the project turns out) or performance-related pay under which the employee earns $0 if the project fails and $40,000 if it succeeds.
a. Assuming both parties are risk neutral, which compensation scheme should the government use?
b. Do you see any problem with the performance-related pay scheme when the employee is risk averse?
Select two of what you believe to be the most credible tools used in tax research and planning. Assess each in terms of its strengths and weaknesses. Utilize other sources to support your comments.
In May 2012, the yields to maturity in the table below were recorded on Treasury discount bonds. If the expectations theory of the term structure holds, what do bond traders expect the interest rate on five-year discount bonds to be in May 2017, M..
How might a critic respond to the claim that taxes always make the allocation of resources less efficient?
A painting operation is performed by production worker at a labor cost of $1.40 per unit. A robot spray-painting machine, costing $15,000, would reduce the labor cost to $0.20 per unit. If the device would be valueless at the end of 3 years.
A state meat inspector in Iowa has been given the assignment of estimating the mean net weight of packages of ground chuck labeled "3 pounds." Of course, he realizes that the weights cannot be precisely 3 pounds. A sample of 36 packages reveals th..
The following function describes the demand condition for a company that makes caps featuring names of college and professional teams in a variety of sports. Q = 2,000 - 100 P where Q is cap sales and P is price. a) How many caps could be sold at $..
Suppose there is a risky stock which returns $4 with probability 0.5 and 0 with probability 0.5 for every dollar invested. Suppose for every dollar, I invest a share x in A and (1-x) in risk free government bonds.
The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned-ride snowmobiles. The model specifies that sales S vary jointly with disposable personal income Y and the population between ages 15 and 4..
Use the data in Tables 19-8 and 19-9 to find an estimate of the U.S. budget deficit as a percentage of GDP during each of the decades represented. How much has it increased since the 1960s?
Why is international trade important for South Africa
Evren wants to go into the donut business. For $500 per month he can rent a bakery complete with all the equipment he needs to make a dozen different kinds of donuts (K = 1; r = 500). He must pay unionized donut bakers a monthly salary of $400 eac..
The manager of a meat-packing plant can use either butchers (labor) or meat saws (capital) to prepare packages of sirloin steak. Based on estimates provided by an efficiency expert, the firm's production function for sirloin steak is given by Q=K+..
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