Consider the questions faced by the board and the CEO in Problem 14. Assume that, as before,
Question:
a. Draw the extensive form for this game and find the equilibrium. Does the change in the cost of high effort alter the outcome? Explain.
b. Demonstrate that the directors cannot improve their outcome by changing the base salary in the profit-sharing plan.
c. What is the minimum share of the firm's profit that will induce the CEO to expend high effort?
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a The change in the cost of high effort changes the equilibrium payoff to 61 million 600000 The CEOs ...View the full answer
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Related Book For 
Microeconomics
ISBN: 9781464146978
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson
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