Question: 5. [Moral Hazard 1] Consider the Principal-Agent problem with the following parameters g =200, m = 100, and b = 50 eL P(g)=0.1 P(m)=0.3 P(b)=

5. [Moral Hazard 1] Consider the Principal-Agent problem with the following parameters g =200, m = 100, and b = 50 eL P(g)=0.1 P(m)=0.3 P(b)= 0.6 eH P(g)=0.6 P(m)=0.3 P(b)= 0.1 Agent's utility u(x) = 2x Cost for effort dH = 10 and dL = 0. Suppose instead the principal offers a pure franchise scheme with fee f. Write down the agent's payoffs when taking effort eH and eL. Find the condition (an inequality involving f) under which the agent would take eH. Does f = 50 satisfy this condition

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