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A risk neutral principal hires a risk neutral agent to work on a project. The project can either yield high output h or low output l. The probability of h depends on the agent’s unobservable effort e. With probability 1 − e the output is low. The agent is protected by limited liability, so his compensation can never go below zero. Let t(h) and t(l) be the agent’s compensation as a function of the output. The agent’s outside option is zero and the cost of effort function is c(e) = e2/2. The principal offers to the agent a contract that maximizes the principal’s expected profit subject to the incentive compatibility, limited liability and participation constraints.
Find the optimal contract
What is Employee Productivity and briefly explain the methods or techniques to improve employee productivity in an organization.
China’s currency, the renminbi, has strengthened in recent months. Explain what a stronger renminbi means for Chinese citizens. What does it mean for U.S. companies that use China as a manufacturing base?
The charter boat fishing industry has a marginal benefit (demand) for fishing trips out of Irondequoit Bay which can be expressed as a linear function of the price of the trip and the number of trips taken out of the port. This marginal benefit curve..
Carrboro has three equal-sized groups of people: (1) type A people consistently prefer more police protection to less; (2) type B people prefer high levels of police protection to low levels and they prefer low levels to medium levels; Which types of..
From a geographical standpoint, why is space, as in usable area on earth, so integral to the survival of Capitalism as an economic system?
Indicate the type of sales promotion that a producer might use in each of the following situations and briefly explain your reasons: (1) A firm has developed an improved razor blade, but customers are not motivated to buy it.
One of the major reasons that foreign expatriates have difficulty doing business in the United States is that they do not understand American slang. A business executive recently gave the authors the following three examples of statements that had no..
If a hard freeze eliminates premium coffee crop, illustrate what will take place to the price of premium coffee.
Consider a decision maker who is choosing how many apples to buy. His choice set is {0, 1, 2, 3, 4, 5, 6} (the store has only 5 apples). (a) Suppose the decision maker always wants as many apples as possible. Find a utility function that represents t..
Analyze the determinants of the price elasticity of demand and determine if each of the following products are elastic or inelastic:
By raising and lowering short-term interest rates to keep inflation moving at a steady pace, many central bankers and academics thought they had finally found a monetary policy solution to conquer booms and busts of the business cycle.
OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to:
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