Derive the optimal contract, Microeconomics

Assignment Help:

Assume that in the market there exist two types of workers where the principle cannot distinguish types. The two types only differ with respect to the disutility of effort. The disutility is either e^2 or 2e^2.

The utility function for worker one is

U^1(w,e) = w - e^2

and for worker two

U^2(w,e) = w - 2e^2

both types of workers have reservation utility zero

The probability that the worker is of type 1 is q = 1/2

An interested firm is risk neutral and has profits Π (w,e) = e - w

a) Which is the good high productive worker and which is the low productive worker

b) Derive the optimal contract for the firm if it had perfect info about the workers type. What effort levels are demanded and what wages paid. Calculate the firm's profits of both types were employed

c) Formulate the problem when an adverse problem is present

d) Derive the second best contract and calculate the firm's profits

e) Compare the cases of symmetric and assymetric info


Related Discussions:- Derive the optimal contract

Homework, the difference between an lc3 and other types of businesses is th...

the difference between an lc3 and other types of businesses is that

Demand and Supply , Demand and supply curve for french breads

Demand and supply curve for french breads

Nucleic acid functions, Nucleic acids perform two important functions 1...

Nucleic acids perform two important functions 1. Replication:  It is the property of biomolecules to synthesise exact copy of it. DNA has this unique property of duplicating it

Monopoly, Tuan lives in a town with only one movie rental store. Suppose Tu...

Tuan lives in a town with only one movie rental store. Suppose Tuan’s demand for movie rentals per month is Q = 16- 2P . The movie store currently charges $5 per movie, but is thin

Microeconomics assignment, suppose the production function is given as:X=b0...

suppose the production function is given as:X=b0Lb1Kb2,where b0=level of technology find marginal product of factors(MPL0and MPK) find factor intensity

How a country exchange rate influence balance of payment, How might a count...

How might a country exchange rate influence the balance of payments? Definition of the exchange rate; price of domestic currency in another (basket of) currency (currencies). C

Types of restraints and validation therapy, 1. Mrs Munyarryun, 67 years, ha...

1. Mrs Munyarryun, 67 years, has been retired from her work for two years. She rings for advice about urinary incontinence, a problem she has experienced over the last 6 months. Wh

EM13720147ion, Ask questMicroeconomics Reference No.:- #Minimum 100 words ...

Ask questMicroeconomics Reference No.:- #Minimum 100 words accepted#

Tax incidence, if the inverse demand curve is p=120-Q and the marginal cost...

if the inverse demand curve is p=120-Q and the marginal cost constant at 10, how does the monopoly a specific tax of 10 per unif affect the monopoly optimum and welfare of consumer

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd