Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Principle Agent Problem [Dealing with hidden action]
Assume that the employer (principle) wants its employee (agent) to work hard [You can safely assume that this maximizes the principle's expected profits from his business]. There are two effort levels available, eL = 0 and eH = 2 . The effort level of the agent is not directly observable for the principle. Then the principle has to base his wage contract on the outcomes, year end profits for the firm. Two outcomes are possible, πH = 1000 and πL = 0. The outcome does not only depend on the effort level of the agent, but on the market conditions as well. But high effort level increases the chances of ending up with the good outcome. With high effort level probability of ending up with the good outcome πH is 0.9, and it is only 0.1 when the effort level is low.
Agent's utility function is given as U (w,e) = W ½ - 4e . Note that his utility depends negatively on the effort level he exerts; it is costly for him to exert effort _ it creates disutility. Agent's reservation utility is U0 = 1 by assumption, not getting the job he can stay at home and read all day and that worth 1 util for him. Put yourself in the place of the principle and design a wage contract for your agent. Again your aim is to exert high effort. Denote the wage payments agent receives when good outcome or when bad outcome is realized as wH and wL , respectively.
a. Indicate the condition that creates the incentive to exert high effort level for the agent [incentive compatibility constraint].
b. Indicate the condition that must hold for the agent to accept this contract [participation constraint or individual rationality constraint].
c. Determine the wage contract that would make the agent work and work hard [Go with the minimum possible wages, you want to maximize the profits].
draw a production possibility frontier task using the graph and value and identity the pareto efficent and inefficient point and the marginal oppotunity cost of x for each point of
Government Budget Deficits Governments have been traditionally spending more what they could earn by way of taxes and sale of economic goods and services produced by them. The
Explain the micro and macro economic issues that can be represented on the PPC
meaning of economics laws
market failure
how is price and output equilibrium determined in Williamson''s model of managerial discretion?
How might you determine whether flute-playing ability is a highly heritable trait? If you want to improve your flute playing and someone tells you that musical ability is heritable
Igora''s pizzeria want to know if it should stay open this spring. Total Revenue will be $ 12,000 per week and Total Cost will be $ 18,000 per week. The fixed cost of running the b
Ben prefers the mixed consumption basket x+y to either 2x alone or 2y alone. But as between the latter baskets, he would rather have the 2x. Do the fact stated indicates the axiom
Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4
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!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd