Suppose the agent has a utility function of U= we, where e can assume the levels...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose the agent has a utility function of U= we, where e can assume the levels 0 or 7, and a reservation utility of U=4. The principal is risk neutral. Denote the agent's wage, conditioned on output, as w if output is 0 and wif output is 1,000. Only the agent observes his effort. Principals compete for agents. Table 6 shows the output. Table 6: Output from Low and High Effort Probability of output of X Effort 0 1,000 Total Low(e = 0) 0.9 0.1 1 High (e = 7) 0.2 0.8 1 220 (a) What are the incentive compatibility, participation, and zero- profit constraints for obtaining high effort? (b) What would utility be if the wage were fixed and could not depend on output or effort? (c) What is the optimal contract? What is the agent's utility? (d) What would the agent's utility be under full information? Under asymmetric information, what is the agency cost (the lost utility) as a percentage of the utility the agent receives? Suppose the agent has a utility function of U= we, where e can assume the levels 0 or 7, and a reservation utility of U=4. The principal is risk neutral. Denote the agent's wage, conditioned on output, as w if output is 0 and wif output is 1,000. Only the agent observes his effort. Principals compete for agents. Table 6 shows the output. Table 6: Output from Low and High Effort Probability of output of X Effort 0 1,000 Total Low(e = 0) 0.9 0.1 1 High (e = 7) 0.2 0.8 1 220 (a) What are the incentive compatibility, participation, and zero- profit constraints for obtaining high effort? (b) What would utility be if the wage were fixed and could not depend on output or effort? (c) What is the optimal contract? What is the agent's utility? (d) What would the agent's utility be under full information? Under asymmetric information, what is the agency cost (the lost utility) as a percentage of the utility the agent receives?
Expert Answer:
Related Book For
Posted Date:
Students also viewed these finance questions
-
CANMNMM January of this year. (a) Each item will be held in a record. Describe all the data structures that must refer to these records to implement the required functionality. Describe all the...
-
"internet radios" for streaming audio, and personal video recorders and players. Describe design and evaluation processes that could be used by a start-up company to improve the usability of such...
-
where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.
-
What is the stripe size of a five-disk RAID 5 set with a strip size of 32 KB? Compare it with the stripe size of a five-disk RAID 0 array with the same strip size.
-
Calculate the rank correlation coefficient between price and quantity for the data in Problem 7.2. How does it compare with the ordinary correlation coefficient? Problem 7.2 The data below show...
-
1. Working in small groups, complete the Pay Raise Worksheet. 2. After the class reconvenes, group spokespersons present group findings. Pay Raise Worksheet April Knepper is the new supervisor of an...
-
In recent years, Avery Transportation purchased three used buses. Because of frequent turnover in the accounting department, a different accountant selected the depreciation method for each bus, and...
-
The December 3 1 , 2 0 2 4 , adjusted trial balance for the Blueboy Cheese Corporation is presented below. Account Title Debits Credits Cash $ 2 1 , 0 0 0 Accounts receivable 3 0 0 , 0 0 0 Prepaid...
-
One way to see whether this procedure will be successful is to split the original data set into two subsets: one subset for estimation and one subset for validation. A regression equation is...
-
On ablank sheet of paper, draw each step to add a new node at index 4of a double-linked list with 5 nodes. Be sure to note the head ateach step.Take aphoto of your answer and upload it. 1 answer
-
Explain the STRUCTURING REAL ESTATE FINANCING INSTRUMENTS
-
Several diversified companies look to maximizing cross business resource sharing. In your opinion what are certain types of resources that may be easier or difficult to transfer? What are some...
-
Current resources and determine if additional investments are needed to execute the strategic plan effectively. Allocate resources to areas with the highest potential ROI and impact on the business....
-
Explore each of the following resources below. What did you learn? How might each be helpful in the start-up of a business? Maintenance? Dissolution? Useful Online Legal Resources Business.gov...
-
Sara Michaels has been asked to determine the resources her firm would need in the next 3-5 years. These types of decision are: Strategic Planning Tactical Planning Operational Planning/Control
-
All public entities must disclose annual (and quarterly) financial results to the public. What type of information can financial data convey? What type of information can financial data not convey?
-
5. Convert the following ERD to a relational model. SEATING RTABLE Seating ID Nbr of Guests Start TimeDate End TimeDate RTable Nbr RTable Nbr of Seats RTable Rating Uses EMPLOYEE Employee ID Emp...
-
Show that the price elasticity of demand is -1 if and only if the marginal revenue is zero.
-
ABC and XYZ are the only two firms selling gizmos in Europe. The following table shows the profit (in millions of euros) that each firm earns at different prices (in euros per unit). ABC's profit is...
-
Suppose we observe that the price of soybeans goes up, while the quantity of soybeans sold goes up as well. Use supply and demand curves to illustrate two possible explanations for this pattern of...
-
Professor Ray C. Fair's voting model was introduced in Exercise 2.23. He builds models that explain and predict the U.S. presidential elections. See his website at...
-
In the STAR experiment (Section 7.5.3), children were randomly assigned within schools into three types of classes: small classes with 13-17 students, regular-sized classes with 22-25 students, and...
-
Many cities in California have passed Inclusionary Zoning policies (also known as below-market housing mandates) as an attempt to make housing more affordable. These policies require developers to...
Study smarter with the SolutionInn App