Suggest strategies to alleviate this principal agent problem

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Reference no: EM131277556

1. Ministers in Singapore are the highest paid politicians in the world, receiving a 60% salary raise in 2007 and as a result Prime Minister Lee Hsien Loong‘s pay jumped to S$3.1 million, five times the US$400,000 earned by President Barack Obama. Although there was a brief public outcry regarding the high salary in comparison to the size of the country governed, the government's firm stance was that this raise was required to ensure the continued efficiency and corruption-free status of Singapore's "world-class" government.

Key Question: Would paying politicians more attract better politicians?

Read:https://freakonomics.com/2012/06/21/would-paying-politicians-more-attract-better-politicians/

(a) Is there an asymmetric information problem in the market for politicians? What kind of information problem?

(b) Read the paper by Claudio Ferraz and FredericoFinan mentioned in the freakonomics link above - "Motivating Politicians: The Impacts of monetary incentives on quality and performance". What is the rationale for paying more to politicians? Draw a simple diagram to make your point. Based on their paper, is there any evidence that paying politicians more actually improves quality?

(c) In another study, Ernesto Dal Bo, FredericoFinan, and Martin Rossi study the links between quality of civil servants and wages. Read their paper provided in the link above.

Summarize their theoretical model.

Briefly summarize their paper highlighting the findings in regards to: i) the role of financial incentives in attracting a larger and more qualified pool of applicants; ii) the elasticity of the labor supply facing the employer, iii) the role of job attributes

2. What happens when poor pregnant women are given Medicaid coverage?

Read: https://freakonomics.com/2015/03/30/what-happens-when-poor-pregnant-women-are-given-medicaid-coverage/

And the paper "Does Medicaid Coverage for Pregnant Women Affect Prenatal Health Behaviors?" mentioned in the link above.

Do you agree with the arguments provided?

3. Your task is to provide advice to the following challenge: How to get roommates to share in cleaning? Let's hear what you have to say about i) private versus public incentives; ii) moral hazard, and iii) the general cleanliness of men

Rent: https://freakonomics.com/2013/02/20/question-of-the-day-how-to-get-roommates-to-share-in-cleaning/

4. While in Las Vegas last week for a convention, I took a taxi between casinos (might as well see a few while making my contribution). When it came time to pay and I pulled out a credit card, the cab driver informed me that using a credit card would mean paying a $3 fee in addition to the fare ($11.50). This struck me as a ridiculously high surcharge and when it came time to tip the cab driver (all of this using the back seat electronic card reader), I did not add anything extra. My logic was that while I usually tip 20% on cab fare, that would have only been $2.30 and I already was paying $3 above the fare.

Read: https://freakonomics.com/2012/09/11/taxi-tipping-and-the-principal-agent-problem/

(a) Is there a principal-agent problem in this situation? If so, describe it.

(b) Suggest strategies to alleviate this principal agent problem

5. Does your real estate agent have your best interest in mind?

(a) What is the fundamental principal-agent problem in this setting?Watch the video "the truth about real estate agents: https://freakonomics.com/videos/

(b) Suggest ways to solve this principal-agent problem

6. In a provocative article Steve Levit writes: "My model for health care is very simple. On January 1 of each year, the British government would mail a check for 1,000 pounds to every British resident. They can do whatever they want with that money, but if they are being prudent, they might want to set it aside to cover out-of-pocket health care costs. In my system, individuals are now required to pay out-of-pocket for 100 percent of their health care costs up to 2,000 pounds, and 50 percent of the costs between 2,000 pounds and 8,000 pounds. The government pays for all expenses over 8,000 pounds in a year"

Read the full story at: https://freakonomics.com/2014/05/19/a-freakonomics-proposal-to-help-the-british-national-health-service/

(a) What is the key asymmetric information concern that may lead to these types of proposals?

(b) Outline the advantages and drawbacks of such proposal vis-à-vis Obamacare.

Attachment:- Asymmetric-information_bento.rar

Reference no: EM131277556

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