1. Consider a Principal (P) who employs an Agent (A) for the production of a good...

 

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1. Consider a Principal (P) who employs an Agent (A) for the production of a good the quality of which is measured by q. P pays A p each period, and renews A's contract for the next period with probability q. (a) If A is providing quality q in every period, what is the expected life-time of the contract? (b) Assume that A's utility depend on p and q such that u(p, q) = p. (c) Assume that if A loses their job then they will receive an unem- ployment benefit with value 1. What is A's enforcement rent? 2. Consider the previous setup but assume that there is no unemployment benefit: (a) Find A's compatibility constraint. (b) Assuming that P wants to maximise q/p find the contract's Nash Equilibrium (price, quantity and time duration of the contract). 1. Consider a Principal (P) who employs an Agent (A) for the production of a good the quality of which is measured by q. P pays A p each period, and renews A's contract for the next period with probability q. (a) If A is providing quality q in every period, what is the expected life-time of the contract? (b) Assume that A's utility depend on p and q such that u(p, q) = p. (c) Assume that if A loses their job then they will receive an unem- ployment benefit with value 1. What is A's enforcement rent? 2. Consider the previous setup but assume that there is no unemployment benefit: (a) Find A's compatibility constraint. (b) Assuming that P wants to maximise q/p find the contract's Nash Equilibrium (price, quantity and time duration of the contract).

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C Assume that if A loses their job then they will receive an unemployment benefit with value 1 What ... View the full answer