Designing two-period-delayed-compensation contract

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Reference no: EM131070531

Consider an employer, Sears, designing a two-period, delayed-compensation contract for Jane, a prospective worker. If Jane declines Sears's offer, she may accept an alternative job at J.C. Penney paying a salary of $8,000 each period. Jane's MRP at Sears would be $6,000 in period 1 and $10,000 in period 2. For cash flow reasons, Sears can only afford to pay the worker $5,000 in period 1 under the delayed-compensation package. Assume Sears has a zero discount rate and Jane has a 10% discount rate, and that regardless of her employer, she would receive her paycheck at the beginning of any work period. a. What is the range of second period salaries that Sears would be willing to pay such that Sears earns positive profits and b. What is the range of second period salaries that Sears would be willing to pay such that Jane will accept the contract? c. Based on your answers to parts a and b, will Jane work for Sears?

Reference no: EM131070531

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