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

Perform a threshold analysis, You are a member of a problem solving group t...

You are a member of a problem solving group that is concerned with incidents involving losses with their information system (IS). Let us assume that IS loss events can be grouped i

Supply demand curve, an emission fee levied against polluting firms will te...

an emission fee levied against polluting firms will tend to shift the supply/demand curve of the firm/product to the left/right?

Explain change in demand and a change the quantity demanded, What is the di...

What is the difference between a change in demand and a change the quantity demanded?  There is a distinction among demand and quantity demanded. Demand explains the behavior o

Sample survey and test marketing, Sample Survey and Test Marketing: Under...

Sample Survey and Test Marketing: Under this method some representative households are selected on random basis as samples and their opinion is taken as the generalized opinio

Define price elasticity of demand, What is the mathematical definition of p...

What is the mathematical definition of price elasticity of demand The price elasticity of demand is the percentage alters in quantity demanded divided by the percentage change

Trend projection methods, An ole firm can use its own data of past years re...

An ole firm can use its own data of past years regarding its sales in past years. These data are known as time series of sales. A firm can predict sales of its product by fitting t

Mrp systems - basic inputs, MRP systems - basic inputs  It has been es...

MRP systems - basic inputs  It has been estimated that in the USA where MRP was originated and developed by Oliver Wight and George Plossl (1985), virtually all Fortune 500 ma

Evironmental issues and elasticity, looking for information to complete ess...

looking for information to complete essay, info looking for What is elasticity and its calculations for the price of a lap top, that increases by 20% and there is a 40% drop in qua

Assignment, what is the theory of second best ? prove the theorem with the ...

what is the theory of second best ? prove the theorem with the help of a diagram .

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