Question: 1. Consider a principal agent model with hidden effort effort. The principal can choose the wage for project success p3 and the wage for project

1. Consider a principal agent model with hidden effort effort. The principal can choose the wage for project success p3 and the wage for project failure pf. After the wages are chosen, the agent chooses an effort level 7'. One unit of wages directly transfers one unit of utility from principal to agent. A successful project produces 4 units of utility for the principal. The cost of effort to the agent is r2 / 2. A. Write down the utility function for both players B. Find effort as a function or p8 and pf C. Find equilibrium e'ort and wages assuming a limited liability constraint D. What is the efcient effort level

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