2. A risk neutral worker engages in two different tasks, task 1 and task 2. Let eand ez denote the effort he exerts in each, respectively, and assume e + ez 0. The firm's valuation depends on the amount of effort the worker puts into task 1, only. It is repre- sented by the strictly increasing and concave function V(ei). The firm possesses a monitoring technology that allows it to observe a noisy signal of the worker's total effort. This monitoring technology emits the signal s = 1 if it thinks effort is high and 3 = 0 if it thinks effort is low. The probability s = 1 is Pls = 1e, ca] = ti + 2. In addition to paying the worker the fixed wage F > 0, the Principal has implemented a bonus scheme, whereby the worker is paid B > 0 if and only if s = 1. (a) (15 points) Set the Principal's problem and intuitively explain it. How would you interpret ez? (b) (15 points) What is the optimum F? Intuitively discuss your result. (c) (20 points) What is the Principal's cost of implementing effort at the optimum? Discuss your result 2. A risk neutral worker engages in two different tasks, task 1 and task 2. Let eand ez denote the effort he exerts in each, respectively, and assume e + ez 0. The firm's valuation depends on the amount of effort the worker puts into task 1, only. It is repre- sented by the strictly increasing and concave function V(ei). The firm possesses a monitoring technology that allows it to observe a noisy signal of the worker's total effort. This monitoring technology emits the signal s = 1 if it thinks effort is high and 3 = 0 if it thinks effort is low. The probability s = 1 is Pls = 1e, ca] = ti + 2. In addition to paying the worker the fixed wage F > 0, the Principal has implemented a bonus scheme, whereby the worker is paid B > 0 if and only if s = 1. (a) (15 points) Set the Principal's problem and intuitively explain it. How would you interpret ez? (b) (15 points) What is the optimum F? Intuitively discuss your result. (c) (20 points) What is the Principal's cost of implementing effort at the optimum? Discuss your result