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

Externalities, Assignment: Externalities •Consider the following scenario: ...

Assignment: Externalities •Consider the following scenario: The city council has just approved the construction of a water park in your town. As city economist, you are responsible

Discuss american long run growth1800-1973, American Long Run Growth, 1800-1...

American Long Run Growth, 1800-1973 Throughout the 19th and the first three quarters of twentieth century the measured pace of economic growth continued to accelerate. The meas

Demand, brife note on demand

brife note on demand

Production possibility frontier ppf, Production possibility frontier PPF is...

Production possibility frontier PPF is a combination of two or more goods a which a country can make in a given timeline or period with resource fully employed.

Economic growth, a.  Referring to the table below and using the "Rule of 70...

a.  Referring to the table below and using the "Rule of 70," comment on long-term changes in the standard of living in the United States?  b.  Would you rather live in the Unite

Long Run Graph Question, If there is an industry and some of the companies ...

If there is an industry and some of the companies get shut down, how would you graph the short run and long run effects

Barometric forecasting, It is also known a sleadig indicators forecasting N...

It is also known a sleadig indicators forecasting National Bureau of Economic Research of U. S.A has identified three types of indicate Leading indicators coincidental indicators a

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