Question: 6. Consider the following principal agent problem. The agent is risk averse with the following utility function u(w, e) = 2vw - e where e

6. Consider the following principal agent problem. The agent is risk averse with the following utility function u(w, e) = 2vw - e where e is effort, and w is wage income. Effort can be e = 0, e = 1, or e = 2. The principal is risk neutral and his utility V is the net output. Output depends on effort in the following way: Round output 10 output 30 output 50 effort=0 effort=1 effort=2 COIN The ratios in the boxes refer to probabilities. The agent's reservation utility is 2. What is the optimal compensation policy for the principal? [20 marks] in a syndicated loan market

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