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

Monopoly market, 9. The average supernormal profit for the firm is

9. The average supernormal profit for the firm is

HELP, Suppose Jean Splicer, an investor, buys $300,000 of shares of stock i...

Suppose Jean Splicer, an investor, buys $300,000 of shares of stock in a diversified bundle of Bio-tech firms and exactly one year later sells those shares for $315,000. Assume the

Theory of cosumer behaviour - basic themes, THEORY OF COSUMER  BEHAVIOUR: ...

THEORY OF COSUMER  BEHAVIOUR: BASIC THEMES: We elaborated two classical theories (viz. Cardinal Approach and Ordinal Approach). In ordinal approach discussing the indifference

Input-output models , Input-Output Models Input-output models are use...

Input-Output Models Input-output models are used in economics of education in studies of cost-quality and education-labour-earnings relationships. Different levels and forms

Composite goods, what is the effect on the market for dvd players if the pr...

what is the effect on the market for dvd players if the price of dvd rises

EM13106443, May I get a quote on title EM13106443. Thanks

May I get a quote on title EM13106443. Thanks

Production, define and explain theory of production?

define and explain theory of production?

International financial institutions, Conditionality: International financi...

Conditionality: International financial institutions (such as World Bank andInternational Monetary Fund) usually attach strong conditions to emergency loans they make to developing

Sources of external economies of scale, Sources of external economies of sc...

Sources of external economies of scale: Economies of Skilled Labour: This involves upgrading the skills of labour through the provision of education and training faci

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