Question: 1. Teams (from Eric Rasmusen's textbook) (40 points) A team of two workers produces and sells widgets for the principal. Each worker chooses high or

1. Teams (from Eric Rasmusen's textbook) (40 points) A team of

1. Teams (from Eric Rasmusen's textbook) (40 points) A team of two workers produces and sells widgets for the principal. Each worker chooses high or low effort. An agent's utility is U = w 7 20 if his effort is high, and U = m if it is low, with a reservation utility of U = 0. Nature chooses business con- ditions to be excellent, good, or bad, with probabilities 91, 92, and 93. The principal observes output but not business conditions, as shown in the table: ' Excellent Good Bad (91) (92) (93) High, High ' 100 100 l 60 ' High, Low 100 50 20 Low, Low a. Suppose 91 = 92 = 93. Why is {(w(100) = 30,w(not 100) = 0), (High, High)} not an equilibrium? (10 points) b. Suppose 91 = 92 = 93. Is it optimal to induce high effort? What is an optimal contract with nonnegative wages? (10 points) c. Suppose 91 = 0.5, 92 = 0.5, and 93 = 0. Is it optimal to induce high effort? What is an optimal contract (possibly with negative wages)? (10 points) d. Should the principal stop the agents from talking to each other? (10 points)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

A car with load q is parked at the left side of a steel bridge, while a truck with load ris parked at the right side. Without special programs (Excel and calculator are fine), find the maximum...

Please show working out for all parts Teams (from Eric Rasmusen's textbook) (40 points) A team of two workers produces and sells widgets for the principal. Each worker chooses high or low effort. An...

Teams (from Eric Rasmusen's textbook) A team of two workers produces and sells widgets for the principal. Each worker chooses high or low effort. An agent's utility is U=w20 if his effort is high,...

ans7 The Consumer Price Index (CPI) is one of the most used indexes to measure the change in prices. Of concern is the increase in prices - inflation. Inflation has many harmful effects on the...

Corporate Budget i n g Is Broken Let's Fix It Traditional budgeting processes waste time, distort decisions, and turn honeSt managers into It doesn't have to be that wayif you're willing to the ties...

The discussion will focus on management decision-making and control in two companies, American corporation Amazon.com, Inc. and Chinese company Alibaba Group Holding Limited. Decision-making and...

Please read chapter 4 the answer the question 10: It may seem puzzling that a negative externality may induce a strategic complementarity. But ments over the Nash equilibrium. It is not surprising...

my questions Exercise 13.5 (Hard) Tammy lives for two periods. In the first period of life she works ` hours at a wage of w per hour. In the second period of life she is retired and supplies no...

Write an engagement letter of no more than 1,050 words for a Section 404 audit of Apollo Shoes. Assume that Apollo Shoes is a publicly traded company for which the SEC requires an audit of internal...

How might an investigator obtain the physical location associated with a computer device that is used to communicate over the Internet?

An initially stationary box of sand is to be pulled across a floor by means of a cable in which the tension should not exceed 1100 N. The coefficient of static friction between the box and the floor...

( 5 points ) Find a homogenous D E with the solution y = c 1 c o s x + c 2 s i n x + c 3 + c 4 x

In C++ program when calling a function we can use ( sqr( 3*x + 6 ): ). Select one: out of O a False O b. True

13 To include the math library containing sqrt() function, write at the beginning of C++ program (include )- Select one: out of O a. True O b. False

32 Which of the following does not declare a 2-by-2 array and set all four of its elements to 0? red Select one: d out of O 3. All of the other choices initialize all four of the array elements to 0....

11 A C++ variable must not start with: Select one: out of O a. An alphabet O b. A number O CA special symbol other than underscore O d. Both of the above

-3 What is the error of the following code: #include using namespace std; void f); main0{int a=10; a = f0; cout

artificial general intelligence is associated with what level of AGI

5. Which metaphors do you mainly use when talking about organizations and companies? What do these metaphors express about an organization or a company? Are there other metaphors that may be more...

4. Using the same examples you gave in question 3, try to identify circular sequences, i.e. A affects B, but B also affects A.

6. Give three examples that nothing (doing nothing) can function as a cause.